Accruals & Prepayments

MAS
MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
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.

Comments

  • noodles
    noodles Registered Posts: 308
    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
    MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
    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
    MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
    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
    MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
    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
    Bluewednesday Registered Posts: 1,624
    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
    noodles Registered Posts: 308
    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
    MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
    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
    MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
    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
    Bluewednesday Registered Posts: 1,624
    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
    Bluewednesday Registered Posts: 1,624
    Does that make sense now?
  • MAS
    MAS Registered Posts: 11 Regular contributor ⭐ ? ⭐
    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.
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