FRA December 2008 help please

Mrs H
Mrs H Registered Posts: 2 New contributor ?
Hi,

I am completely confused by question 1.2 on this paper! The question was to complete a rent account for the year. I have copied the answer below and was wondering if anyone could give an explanation as the why an accrual brought forward from the previous year would be a credit. I thought that accruals were DR expense account and CR accruals account. When the accrual amount was paid the then entries would be DR accruals CR bank. I can't figure out a logical explanation as to why the accrual would be a credit on the rent account, or what the other side of the double entry would be!

Task 1.2

The list of balances shows an opening accrual for rent. The figure for rent in the bank summary on page 4 includes £2,000 for the quarter starting 1 October 2008. Refurb is not charged VAT on rent.

(a) Prepare the rent account, showing clearly the rent for the year ended 30 September 2008.


(a)

£ £
Bank 9,800 Balance b/f (accrual) 650
Rent for year ended 30 Sept 2008 7,150
Balance c/f (prepayment) 2,000
9,800 9,800


Hope this makes sense to someone!

Thanks very much.

Comments

  • OlympicRudi
    OlympicRudi Registered Posts: 55 ? ? ?
    Basically when you create an accruel you Dr Expenses, Cr Accruels. However when you carry that forward to the next year you Dr Accruels & Cr the expense(Either that or bypass the Accruels account & act just like balance c/d & balance b/d).

    The reason for this is you are trying to work out the rent expense relating to the current year only. Therefore if you have an accruel from previous year you effectively have to pay it off first before the payments start relating to the current year, which means it's a credit. If you have an accruel at the end of the year relating to the current year, you want to add it the expense for the year, meaning it would be a Debit.

    Hope this makes sense.

    Just remember Accruels c/f are Debits, Accruels b/f are Credits.
  • Mrs H
    Mrs H Registered Posts: 2 New contributor ?
    Thank you very much for your help. That makes sense (sort of) now!
  • OlympicRudi
    OlympicRudi Registered Posts: 55 ? ? ?
    Mrs H wrote: »
    Thank you very much for your help. That makes sense (sort of) now!
    It'd have been a lot easier to explain if I could've drawn the T accounts. Just look in the book and take note of the difference between an accruel at the beginning of the current year relating to a charge in the previous year, and an accruel left over at the end of the current year.

    Same thing goes for prepayments. Look at the difference between a prepayment at the beginning of the year payed in the previous year, and a prepayment at the end of the current year payed in the current year, relating to future years' charges.
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