What is the logic when we placing c/d and P&L on dr or cr sides on accruals and pps

Omer AYDINLIOmer AYDINLI Settling In NicelyPosts: 19Registered
Hi all everyone,

Balances as at: 1 April 20X0

Accrual for administration expenses 790
Prepayment for selling expenses 375

1) The bank summary for the year shows payments for administration expenses of £6190. Included in this figure is £1800 for the quarter ended 31 May 20X1.
Prepare the administration expenses account for the year ended 31 March 20X1 and close it off by showing the transfer to the profit and loss account
Answer;
Administration expenses

£ £
dr Bank 6190 cr Balance b/d 790
dr Balance c/d 1200
dr Profit and loss account 4200



2) The bank summary for the year shows payments for selling expenses of £7900. In April 20X1, £825 was paid for selling expenses incurred in March 20X1.
Prepare the selling expenses account for the year ended 31 March 20X1 and close it off by showing the transfer to the profit and loss account. Include dates.

Answer:
Selling expenses

£ £
dr 1/4 Bal b/d 375 cr 31/3 Profit and loss account 9100
dr 31/3 Bank 7900
dr 31/3 Bal c/d 825


In question one, what is the logic for that c/d 1200 and P&L 4200 on credit side?
In question two, what is the logic that c/d was on dr side and P&L was on cr side?

Thank you very much indeed.

Comments

  • stevefstevef Well-Known CarmarthenPosts: 258Registered
    You need to think about what is going on between the different accounting periods and how your "T" accounts are working.

    In question 1 you have an opening accrual for expenses incurred in the previous year but not actually paid. The £790 was charged to last year as a debit (with a credit to creditors in the balance sheet). this has to be reversed in the current period by a credit b/d in the expenses account. This will offset the account posting when the expenses are actually paid. Then we are in to straight "T" account thinking. On the debit side you have the bank figure, on the credit side you have the openg £790, a prepayment of £1,200 (which gets carried down to be the opening debit balance on the expenses account). So the debits add upto £6,190 and the credits to £1,190, to balance the account you need to place £4,200 on the credit side which is a posting to P&L. The other side of the transaction is a debit in the P&L account which is exactly what you need.

    Similar logic in question 2, you have an opening prepayment of £375. It was paid last year but the expense was not incurred until the curerent year. So last years account was credited to remove the payment to form an opening debit balance this year. In your "T" account the debit side contains your opening balance of £375, the bank items of £7,900 and an accrual of £825 (carried down to next year to form an opening credi balance next year), a total of £9,100. So to balance the account you need a credit of £9,100, the other half of this double entry is a debit in the P&L account.
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