Financial Statements Help

beackyb

I have just sat practice assessment 1 for Financial Statements and wondered if someone could help/ explains something to me?

There is a prepayment of an expense in task 1 which i dealt with correctly in the Statement of P&L, however in Task 2 in the Statement of Financial Position I decreased the payables by the amount of the prepayment where as in the model answers the prepayment for expenses has been added to 'Trade and other Receivables' can anyone explain why this is please as in a dark recess of my mind it kind of makes sense but i can't articulate why!

Thanks in advance
Rebecca

PeterC

Let's assume that the prepayment was £100 for insurance. This would create a debit balance of £100 in the "Insurance" ledger account. This is an Asset. The Insurance company owes your business either one hundred pounds' worth of insurance or your money back. People who owe money to your business appear in the SOFP as "Receivables"

You decreased the "Payables", which would have been appropriate if you paid £100 you already owed to the Insurance company but that isn't a "Prepayment"

beackyb

Thank you so much Peter.

Makes perfect sense now!

Rebecca