Failed AP1!!!!

kazcraw

Unfortunately I failed AP1 but plan to take the re-sit on Friday this coming week. I am really struggling with Accruals & Prepayments. I have completed the 2 online assessments and passed them, and have done some paper assessments and passed them.

I had two Borderline - fixed asset register which I know inside out so must have made a really stupid mistake, and making adjustments in the etb which I was unable to complete as I got myself really confused. I did not meet accruals and prepayments!

I've spent 6 hours so far today doing the online assessments, greenlight, reading the text book, but still it's not making sense to me!!!

Can anyone give me some tips on how to remember which is which, I understand the concept of accruals and prepayments for expenses, but then lose the plot when it comes to putting that info into t-a/cs and working out the figures. I get confused when you have for example a year ended 31/5/01 and in June you receive a bill for quarter ended 30 june which you haven't paid. I understand a portion of that bill relates to the current year and a month is for the next financial year but then don't know how to put the figures into the correct places. Likewise prepayments

I would be grateful if any advise :001_unsure:

Richard

kazcraw wrote: »

Can anyone give me some tips on how to remember which is which, I understand the concept of accruals and prepayments for expenses, but then lose the plot when it comes to putting that info into t-a/cs and working out the figures. I get confused when you have for example a year ended 31/5/01 and in June you receive a bill for quarter ended 30 june which you haven't paid. I understand a portion of that bill relates to the current year and a month is for the next financial year but then don't know how to put the figures into the correct places. Likewise prepayments

I would be grateful if any advise :001_unsure:

If your year end is 31 May, and on 30 June you receive an invoice for the period 1 April - 30 June, you have two months worth of expenses "missing" from your P&L, so you would have to debit the P&L and credit accruals on the balance sheet.

Likewise, if you receive an invoice on 1 May for the period 1 May - 30 April, if all of this was shown in the P&L you would have 11 months charge in the current year, which actually relates to the following year. Instead of having a missing charge, you have too much expense, so you need to take it out of the P&L. This would be a debit to prepayments on the balance sheet, and credit the expense on the P&L.

wbauk2002

I was struggling with Accruals And Prepayments to but once I got it its hard to forget

Just remember, Accrual is a liability because it relates to last year and needs paying, so you add it to last years balance, then bring down accrual as a credit (a liability). A prepayment relates to the next financial year, so its money you have already paid and not currently been used in a sense, so its an asset, so remove it from last years balance (a credit) then its brought down as a Asset in the balance sheet (a debit).

Also read the dates and read them again, because sometimes only 2 months of a payment could be a prepayment on a 3 month payment etc

kazcraw

Thanks Richard, it's beginning to make some sort of sense now. Like I said I understand the concept, but when I get a question about what adjustments needs to be made that's where I fall down. I've done a lot of swatting so hopefully I can pull it off on Friday

kazcraw

Thanks wbauk

I think I'm finally getting it, don't know why I can't get it in my head. I take your advice onboard about reading and re-reading the question, on some of the practice assessments it caught me out with whether it was pre-payments or accruals. Thanks again.

omega man

wbauk- i disagree,u cannot say blindly that accrual is a liability an accrual can also be an asset like accrued income.
Assets are accrued income and prepaid expenses and liabilities are accrued expenses and prepaid income,from this just do your T accounts and it will all make sense.

kazcraw

Thanks omega man, I was wondering about accrued income and prepaid income as that's part of where I get confused between those and accrued expenses and prepaid expenses. My tutor gave me some tips this week so hopefully I will be okay. Thanks again