Could someone show me the T account for this question please?

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topcat
topcat Registered Posts: 452
in AAT Level 3 (Level 6 in Scotland)
I can sort of see where the answer is coming from but if i drew up a T account it would be

Debit
prepayment 740


Credit
Open Accrual 550
I/S 5300prepayment 740

Question: DG Ltd has prepared its income statement and statement of financial position for the year ended 31 December 20X1. One of its expenses is for insurance, and the income statement shows a figure of £5,300. At 1 January 20X1 there was an opening accrual of £550 for insurance, whilst at 31 December 20X1 the statement of financial position includes in other receivables a prepayment for insurance of £740. From the data given, calculate the actual payment for insurance during the year ended 31 December 20x1.



Answer :
The answer is £6,590. Start with the insurance in the income statement of £5,300, then add the opening accrual of £550 as this would only have been paid in cash during the year. The closing prepayment of £740 is also added, because although it relates to next year's insurance expense the cash amount would have been paid this year.

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  • Nps
    Nps Registered Posts: 782
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    Hi,

    Dr - 6590

    Cr - 550, 740 and 5300

    The 740 will be carried down to form the opening DR of the next year.
  • topcat
    topcat Registered Posts: 452
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    Hi,

    thank you for your help again always appreciated :)

    very strange question though
  • Nps
    Nps Registered Posts: 782
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    Why strange? I'd say it's a fairly typical example of what you'll get in the exam. It's testing that you fully understand that an accrual from last year will go on the same side as a prepayment for next year. I imagine some people would see both accruals and prepayments mentioned, and assume that they go on opposite sides.
  • topcat
    topcat Registered Posts: 452
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    Nps1976 wrote: »
    Why strange? I'd say it's a fairly typical example of what you'll get in the exam. It's testing that you fully understand that an accrual from last year will go on the same side as a prepayment for next year. I imagine some people would see both accruals and prepayments mentioned, and assume that they go on opposite sides.

    i have never seen it before thats all so all new to me.

    I remember accruals and prepayments as PA (debit prepayment credit accrual) , so this question has really ruined my way of remembering it clearly i don't understand accruals and prepayments very well :(
  • Nps
    Nps Registered Posts: 782
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    Yes that's exactly what I mean, thinking that they go on opposite sides. You need to always bear in mind that although that's where they may end up, sometimes they are on the opposite sides to begin with so that when you carry them down at the end of the year, they end up on the right side as per your way of remembering them. Clear as mud?

    I don't think anyone understands accruals and prepayments straight away so don't worry.

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