Trial Balance Accts

sscors

Hey

would be very grateful for some help on a query I have related to trial balance. Currently doing a question where I have to assign trial balance accounts to either a debit or credit column. Not entirely sure why: prepayment of expenses is in debit column, accum depreciation is in credit, deprec charge is is in debit, accrual of expenses is in credit

Any help would be much appreciated

sdv

To understand this you need to understand the "Accruals concept" = match income and expense to the accountng period reported on

Prepayment means payment of expense in the current accounting period that belongs to the next period, Therefore you need to reduce the expense account by crediting it with a prepaid amount and debit the prepayment (current asset) account

Accruals is opposite of preprymant. - Current year's expense are paid in the next accounting period. Therefore at the end of the current accounting period, we need to increase the expense by debiting the expense account with unpaid amount and crediting the Accruals (current liabilites) account.

Depreciation charge is the expense for the use of fixed asset in the current year. If a business has car costing £20,000 and it is estimated to have a lifeof 5 years then

debit Depreciation charge account with £4000 and Credit Accumulated Depreciation account by £4000. - Note we do not credit the Motor Car asset account because one of the accounting standard requires business to show the Fixed asset at cost on the balance sheet and total accumulated depreciation for each class of assets. The difference is the Net Book Value of the asset.

Please note: all expenses and Assets accounts are Debit balances
and all Income and Liabilities have Credit balances.

sscors

Thanks so much for taking the time to explain, mucho appreciated. The only thing I still can't understand is why accum deprec is a credit as to my mind I think of it as an accumulated expense that should be debited? Just wish I could understand this

Clarekaye

The way I look at the depn is the charge in the year is exactly that - an expense but the acc depn at the end of the day is to be taken off the original cost of the asset.
But someone correct me if I am wrong :-)

stevef

You need to think what depreciation is to understand the debits and credits here. Depreciation is the charging the accounts for the use of an asset, the asset sitting in the balance sheet, as it is used reduces in value. Depreciation is the mechanism for recording this fall in value and charging it to the Comprehensive Income and Expenditure account (CI&E).

So if you have an asset in the balance sheet with a gross book value of say £100k, with a 10 year life, straight line depreciation with no residual value, gives a depreciation charge of £10k a year. At the end of year one you

In CI&E Debit £10k depreciation
In balance sheet Credit £10k Accumulated depreciation
The balance sheet then shows for asset
Gross Book Value £100k Dr
Accum Deprn £10k Cr
Net Book value £90k Dr

and so on untill end of year 20 when balance sheet will show
Gross Book value £100k Dr
Accum Deprn £100k Cr
Bet book value nil

sscors

Much appreciated for the comments, understand it a lot better now. Thanks again