Prepayments & Accruals Question?

AngelDust

Hi, can anybody please help with the following trial balance adjustments?

1. The rent started the year with an opening prepayment of £1700. The final payment of £2625, which was paid in January 2014, covered the period February to April 2014.

2. The rates started the year with an opening accrual of £850. The final payment of £2565, which was paid in February 2014, covered the period December 2013 to February 2014.

Closing balance for the Rent account: £12,050 DR
Closing balance for the Rates account: £9,380 DR

For 1, I've calculated £875 prepayment (2625 / 3 = 875) prepaid expense for Rent a/c

For 2, I've calculated £2565 accrual, as it's accrued expense for Rate a/c

Is this correct?

Thank you for your time!

LearningAcademy

Hi

Crucial information about the financial year is missing. However, looking at your first question, it appears to be April to March 2014.

If that is the case,
1 - is correct
2 - appears to be incorrect. The information provided tells us that the last payment was for the period up to February 2014 only - i.e. payment for March 2014 is not made. Rates for March 2014 will work out to be £855 (£2565/3). Therefore, the accrual amount will be £855 and not £2565 as you have calculated.

This is of course subject to the financial year being March-April 2014.

Thanks

AngelDust

The financial year end is 31st March 2014 @LearningAcademy

LearningAcademy

Thanks @AngelDust
Our comments would hold good, then.