Accruals and prepayments

fireitup
fireitup Registered Posts: 19 New contributor 🐸
in AAT Level 3 (Level 6 in Scotland)
Hi, doing the Advanced certificate and having a bit of a problem with the treatment of accruals and prepayments.
I'm given expense amount unpaid at the start of the year and how much left unpaid at the end of the year. What is the adjustment to the expense ledger balance that I take to the P&L?

Wages expense for year £2000
Wages unpaid at start of year £500
Wages unpaid at end of year £700

What's the end of year P&L figure??

I can't get my Balance Sheet to add up and I know it's because of this, but why??? :confused1:

Comments

  • AK002
    AK002 Registered Posts: 2,492 Beyond epic contributor 🧙‍♂️
    I would enterperate it like so;

    Wages unpaid at start of year being PY accrual and wages unpaid at end of year being CY accrual.

    So your wages account on the P&L should be like this, the other side of the entries are in bold:

    Cr £500 (reversing of PY accrual) Dr accruals £500
    Dr £2000 (bringing in the expense during the year) Cr bank/cash £2000
    Dr £700 (bringing in of CY accrual) Cr accruals £700

    Wages account =£2,200.
  • rachy1975
    rachy1975 Registered Posts: 366 Dedicated contributor 🦉
    AK002 wrote: »
    I would enterperate it like so;

    Wages unpaid at start of year being PY accrual and wages unpaid at end of year being CY accrual.

    So your wages account on the P&L should be like this, the other side of the entries are in bold:

    Cr £500 (reversing of PY accrual) Dr accruals £500
    Dr £2000 (bringing in the expense during the year) Cr bank/cash £2000
    Dr £700 (bringing in of CY accrual) Cr accruals £700

    Wages account =£2,200.

    Just what i was about to put.... :001_smile:
  • fireitup
    fireitup Registered Posts: 19 New contributor 🐸
    So, I'm posting £2200 to overheads in P&L and £200 to accruals in Balance Sheet.

    Great just to get a little confirmation there, I was sure that was the problem but it must lie elsewhere, back to the books for me.

    Think it's maybe my purchase or sales figure now. :001_unsure:


    Many thanks for your help.
  • rachy1975
    rachy1975 Registered Posts: 366 Dedicated contributor 🦉
    fireitup wrote: »
    So, I'm posting £2200 to overheads in P&L and £200 to accruals in Balance Sheet.

    Great just to get a little confirmation there, I was sure that was the problem but it must lie elsewhere, back to the books for me.

    Think it's maybe my purchase or sales figure now. :001_unsure:


    Many thanks for your help.

    No, 700 cr to accruals??
  • AK002
    AK002 Registered Posts: 2,492 Beyond epic contributor 🧙‍♂️
    rachy1975 wrote: »
    Just what i was about to put.... :001_smile:

    Great minds think alike :D
    rachy1975 wrote: »
    No, 700 cr to accruals??

    The net effect would be Cr 200 to accruals.
  • Gem7321
    Gem7321 Registered Posts: 1,438 Beyond epic contributor 🧙‍♂️
    No fireitup is right
    Dr expense 2200
    Cr accruals 200
    Cr bank/cash 2000

    Edit: Bah AK beat me to it!
  • AK002
    AK002 Registered Posts: 2,492 Beyond epic contributor 🧙‍♂️
    rachy1975 wrote: »
    Just what i was about to put.... :001_smile:
    Gem7321 wrote: »
    No fireitup is right
    Dr expense 2200
    Cr accruals 200
    Cr bank/cash 2000

    Edit: Bah AK beat me to it!

    How good am I lol :thumbup1::lol::lol:
  • rachy1975
    rachy1975 Registered Posts: 366 Dedicated contributor 🦉
    The net effect would be Cr 200 to accruals.[/QUOTE]

    of course it is.....i need to get back to college!!!

    :blushing:
  • AK002
    AK002 Registered Posts: 2,492 Beyond epic contributor 🧙‍♂️
    rachy1975 wrote: »
    The net effect would be Cr 200 to accruals.

    of course it is.....i need to get back to college!!!

    :blushing:[/QUOTE]

    LOL, don't be so hard on yourself.

    It was after 5 o'clock on a Friday which officially = the weekend!
  • Krishi
    Krishi Registered Posts: 4 New contributor 🐸
    Hi,

    It’s works like
    Cr £500 (accrual balance b/d--as it's previous years accrual) Dr accruals £500
    Dr £2000 (bringing in the expense during the year) Cr bank/cash £2000
    Dr £700 (Accrual bal c/f to next year) Cr accruals £700

    So Expense account will be 2200£ DR,It will go to P&L account as expenses and 700 £ will go in year end B/S in current liabilities - Accrual
  • Krishi
    Krishi Registered Posts: 4 New contributor 🐸
    Hi,

    better way to just try to understand wt's the different between Balnce b/f ( accural ) and Bal c/f (accrual) in expense a/c

    In Expense A/c
    *Cr £500[/B] (accrual balance b/f --as it's previous years unpaid expense)
    *Dr £2000[/B] (expense during this year)
    *Dr £700 (Accrual bal c/f to next year --this year expense is not paid till date of year end so it will brought forwad to next year as unpaid expense (accural)--)

    So Expense account will be 2200£ DR,
    It will go to P&L account as expenses and 700 £ will go in year end B/S in current liabilities - Accrual

    Expense/Income ---P&L account
    Accrual(expense) ---B/s current liabilties, Prepayment(expense) - B/s current assest
    Accrual,prepayments for Income a/c works other way round in B/S.

    hope it will help u:001_smile:
  • fireitup
    fireitup Registered Posts: 19 New contributor 🐸
    Great, thank you all,

    It was the amount taken forward to the BS that was throwing me.

    I've got the figures right now and more importantly I realise what's happening with accruals and prepayments.

    Yeah, happy, happy,happy :thumbup:

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