Accruals and prepayment BPP Question help

reaganorton
reaganorton Registered Posts: 1
in AAT Level 3 (Level 6 in Scotland)
On task 3 on the practice assessment 1; in the BPP book, there is an accrual of a rental income for £250 Balance Brought Down on 1st July 2013.

The bank summary for the year shows the receipts of rental income of £5000. Included in this figure is £270 for the quarter ended 31 July 2014.

The question is asking to prepare the rental income account for the year ended 30 June 2014 and close it off by showing the transfer to the statement of profit or loss.

So my question is, why is the Balance Brought Down of £250 on the debit side, when I thought wrongly that it would appear on the credit side as it is an accrual and accruals are a liability.


Any help would be appreciated especially as my exam is fast approaching and I don't want to fail a third time :(

Comments

  • Adele69
    Adele69 Registered Posts: 320
    This is the only area of the ACPR exam where I got less than a met though I did pass first time so must have got enough in other areas and did a lot of revision on this chapter too so was frustrated.

    That said, have you the BPP book to hand, page 126-127 on accrual of income shows that since it's an income and your opening balance is a credit the accrued income b/d is a debit. I try and think how an accrued expense would be, then for income switch around the db/cr
  • CeeJaySix
    CeeJaySix Registered Posts: 645
    edited August 2016
    'Accruals' generally refer to accrued expenses, and are a liability.

    This is accrued income (rental income receivable but not yet invoiced (as otherwise it would be in receivables)) - and is therefore an asset/dr (you are owed money).

    At the start of the year you are owed £250.
    You receive £5k in the year; £250 relates to last year, so £4,750 relates to the current year.
    You received £270 for the quarter ended one month after your year-end, so 1/3 of this is deferred income (it relates to the next period). So current year rental income account should show £4,750 - £270/3 = £4,660.

    I'll let you try and work out where the debits/credits should go on T-accounts from that (you will need a rental income account, an accrued income account, and a deferred income account.

    Not that it affects this particular question, but accruals and deferred income are often recognised together, as are prepayments and accrued income.

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