Assistance needed on this question on accrued or prepaid income

mcykc

Hey guys !!

First time posting on here, have my first exam soon and I was wondering if any of you wizards can help me out on his question about accrued and prepaid income and expenses


You are working on the accounts of a business for the year ending ended 31 march 20X7
In this question you ignore VAT and have the following information
• The balance on the rent recieveable account at the beginning of the financial year is £4500. This represents a prepayment for the rent recievable as at the end of the year on 31/03/X6
• The bank summary for the year shows reciepts for rent receivable of £18900
• The rent receivable account has been correctly adjusted for $4800 rent for the quarter ended 30 June 20X7 which was recieved into the bank on 21 march 20X7
• Double entry accoutning is done in the general ledger


Q) calculate the rent receivable for the year ended 31/03/X7


This is a question from the practise assessments on the AAT website and I know the answer in 18600 but I dont understand why


Thank you in advance for any responses

Nps

Hello

The £4500 is a prepayment from last year so this is telling you that the rent it relates to is part of this years income (so needs to be included in this years total even though it was actually paid last year)

The bank statement shows that you received £18900 of rents during the year so you add this to the 4500 you already know about, giving a total of £23400.

However, you are then told that £4800 of those bank receipts actually relate to the period of 1 April 07 to 30 Jun 07 which falls outside of this financial year, so is actually a pre payment towards next years rent. Hence this must be deducted to get the final total income for this year, 23400-4800 giving you your answer of 18600.

Jo Clark

Nicely explained NPS