Accrual and Prepayement

shalinisharma Registered Posts: 25 Dedicated contributor 🌟 🐵 🌟
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
Administration expenses

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

Anyone please tell me where bal c/d(1200) come from to calculate this please help me


  • Nps
    Nps Registered Posts: 782

    You have a payment of £1800 relating to expenses in the 3 months up to 31 May. 1 month of this period falls in the period you are looking at (up to 31 March), the other 2 months fall after this period so are a prepayment for next year. Therefore £600 of that £1800 is included in this years accounts and the remaining £1200 is the prepayment.
  • shalinisharma
    shalinisharma Registered Posts: 25 Dedicated contributor 🌟 🐵 🌟

    Thanks a lot but still confused could you please show me with calculation .
  • Nps
    Nps Registered Posts: 782
    The question tells you that £1800 of the £6190 expenses paid out that year, don't actually all relate to that financial year. You are told that they relate to the quarter ending 31 May, which is March, April and May. Only March falls into this financial year, April and May fall into the next financial year so are a prepayment. 1800/3 = 600 per month, so you can ignore £600 (the bit for March) as it has been paid in the correct year, but the other 2 months worth of £600 (£1200) relate to next year so need to be carried down in your T account so will be shown as a separate entry.

    This £1200 will then form the opening balance for next year and shows that £1200 have already been paid but need to be shown in the new year as that's when they relate to.

    The £1200 entry will then affect your balancing figure (the one going to profit and loss), hence reducing it by £1200 so that only the costs relating to the right year are shown in the statements.
  • shalinisharma
    shalinisharma Registered Posts: 25 Dedicated contributor 🌟 🐵 🌟
    Now I got it.Thanks a lot ..:-)
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