Accruals & Prepayments

MAS

Could someone please help with the question I have attached. I am really struggling on both but mainly the telephone expenses as it looks like it is an accrual and prepayment. Please help.

Thanks everyone.

noodles

dr re tel bank bills 1460.00
dr re acc 1/3rd 126.00
cr tel 194.00 re rev opening acc
cr pl bal

dr ins 2700.00
cr ins 225 re ppd
dr ins 200 re opening ppyd reversal
cr pl bal

MAS

Hi nscuffell,

Thanks for the answer but could you help explain something to me?

The insurance expense part of the question only had two boxes to fill in the t-account, the 3rd was for totals. Why is the 200 put on the credit side as it was from 2004 and not 2005 so surely this would be a bal b/d on the debit side?? Here is what I did:

dr ins 200 (bal b/d from 2004)
dr bank 2700
cr ins 225 prepayment
cr P+L 2675

Also the telephone expense I understand why 1/3 is dr for 126 but then I thought the remaining 252 (two months) would be placed on the cr side as it is a prepayment? I really don't get it.

Sorry if it sounds like I don't beleive your answer I just don't get why it's done that way.

MAS

Hi Nicky,

I am still confused, please look at the new attachment I have added, it is a practice question from the AAT. If you look at the Admin expenses question and answer which is similar to the telephone expense question I originally asked about. The remaining 1200 prepayment has been placed on the cr side.

MAS

Hi Nicky,

Thanks for trying, looking at previous papers the accruals and prepayments are pretty simple but is seems that the new papers are following this format of mixing a prepayment and accrual in the same expense account which is totally baffling me.

Please if someone could help with the answer and help to explain the first attachent I would REALLY appreciate it.

Thank You

Bluewednesday

MAS wrote: »

Hi nscuffell,

Also the telephone expense I understand why 1/3 is dr for 126 but then I thought the remaining 252 (two months) would be placed on the cr side as it is a prepayment? I really don't get it.

the remaining 126 belongs to the next year, it hasn't been paid as the bill has been received after year end. The bill was recieved in December for the qtr to 30 November, therefore it covered Sep, Oct and Nov. 2 of those months were within the accounting year and one was outside it. Therefore the accrual required is 252.

I agree with your insurance expense but I get the following for the telephone account

dr bank payment 1460
Dr 05 accrual 252
Cr 04 accrual 225
Cr p&l 1518

noodles

nscuffell wrote: »

dr re tel bank bills 1460.00
dr re acc 1/3rd 126.00
cr tel 194.00 re rev opening acc
cr pl bal

dr ins 2700.00
cr ins 225 re ppd
dr ins 200 re opening ppyd reversal
cr pl bal

Ok what a mess I made of it - I think I will stick to what I know - cant think what at the moment but I am sure after this large glass of wine it will come to me .......

MAS

Hi Bluewednesday,

After reading the question again yes it is two months on the dr side not one like I thought. Would that not mean that the remaining 126 would go on the cr of telephone expenses as it would go on the dr of prepayments account. I think you have mixed both questions up as 225 is from the insurance question. Would the following be the correct answer on the telephone expense account?

DR Bank 1460
DR Accruals 252 (2 months)
CR 194 (bal b/d from 2004)
CR 126 (1 month prepayment)
CR P+L 1392

MAS

nscuffell wrote: »

Ok what a mess I made of it - I think I will stick to what I know - cant think what at the moment but I am sure after this large glass of wine it will come to me .......

Enjoy your wine, I feel like a need a full keg of beer to get over this.

Bluewednesday

MAS wrote: »

Hi Bluewednesday,

Would that not mean that the remaining 126 would go on the cr of telephone expenses

No it wouldn't go in there as it was not paid during the year, you are only making the expense right for the year, the bank payment figure doesn't include 2 months of charges so you put that in and nothing else.

I had picked up the wrong bf accrual sorry.

Bluewednesday

Does that make sense now?

MAS

Hi Bluewednesday,

I get it now. I was getting all hung up on the remaining 1 month being a prepayment it was confusing me. Like you said you are only making the account right for the year. It makes perfect sense now. Thanks for your help.