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AAT LEVEL 3 ADVANCED BOOKKEEPING ACCRUALS AND PREPAYMENTS - HELP PLEASE!!

Can anyone help me with the following question:

You are looking for commission for the year. Commission income of £2070 was accrued on 31/3/X6.

The reversal of the accrual is debited dated ________
The reversal is on the ______ side of the commission income account

The cashbook shows receipts for commission income f £42805.
Commission of £1960 for the month ended 31 march 20x7 was received in to the bank

Taking in to account all of the info you have, calculate the commission income for the year ended 31 march 20x7. ________

I strugfle on how to work out the last bit - how i worked it was


Cashbook receipts - debit bank CREDIT commission so CR 42805
Commission received of £1960 would be DR bank CR commission so CR 1960
The answer is £42695 which must mean the £2070 is a debit but i dont know why its a debit and not a credit
I thought income accruals were

Debit Income Accrual
Credit Income account
«1

Comments

  • N4TN4T AAT Student Posts: 191
    Hi ,

    The £2070 DR is the reversal of accrued income from 31/03/X6. (It is not asked for but the double entry for this accrual is DR accrual income and CR commission income)

    So the first part of the question is:
    The reversal of the accrual is debited dated 01/04/X7
    The reversal is on the debit side of the comission income.

    The £2070 was accrued previous year, therefore already credited and accounted for in the year ending 31/03/X6. In the current year you must reverse this accrual by debiting commission income and crediting accruals. When this income is eventually received, it'll be the usual DR bank CR commission income. The debit and credit of £2070 in the current year will cancel each other out.....as this was previous year's income.


  • cbuttery1991cbuttery1991 Registered Posts: 47
    Thank you so much for your help
  • cbuttery1991cbuttery1991 Registered Posts: 47
    Okay so I thought I had my head around it and then I got this question...

    Income of 900 is received on 31st March X7 for the quarter ended 31st March X7. The year end is 31st December X7.

    It says the accrual should be 600 pounds but I thought it would be 300 .. can anyone explain please?!?
  • N4TN4T AAT Student Posts: 191
    It doesn't make sense to me. I wonder if they have the dates wrong, is it part of a bigger question?

    £900 rec'd on 31/3/X7 for quarter ended 31/3/X7.....£900 over Jan-Mar X7....

    Then gives 31/12/X7 as year end?! I think more information is required.




  • cbuttery1991cbuttery1991 Registered Posts: 47
    Sorry let's start again! ...

    31 Dec 20X2 there was an accrual for interest income of £750.
    The cash book for the year shows receipts of interest income income of £4850.

    On 31 Jan 20X4 the business receives £900 of interest income for the quarter ended 31 Jan 20X4.

    The answer says the accrual is for £600 but I thought the answer would be £300!

    Sorry for the confusion
  • N4TN4T AAT Student Posts: 191
    The figures from first two lines appears irrelevant unless it's for another question. But the information I am getting from here is that year end is 31 Dec.

    I can only assume the question is asking to calculate the interest income accrued on 31 Dec 20X3.

    On 31 Jan 20X4 £900 is rec'd for the quarter ended 31 Jan 20X4. This means £300 is for Nov 20X3, £300 for Dec 20X3 and £300 for Jan 20X4.

    So at year ended 31 Dec 20X3 the business must accrue Nov and Dec income not yet received i.e £600.

  • cbuttery1991cbuttery1991 Registered Posts: 47
    Can I then ask again another one and see if I'm understanding this right.

    Year end is 31st March 07.
    You have a bill for admin expenses showing a total cost of £1995 for the quarter ending 31stMay 07. This was received and paid after the year end.

    The expenses account needs an adjustment for .......... of ......... dated .......
    What I did here was did 1995/3 to work out the monthly amount which is 665. Does this mean that I have accrued one month (March) for 665 and now because it's my new year end April and May are just paid out of that year so I am only accruing for one month. To start with I did 1995/3x2 but this isn't right is it?? Sorry I find these so difficult !!
  • N4TN4T AAT Student Posts: 191
    You've got it. Payment of expenses invoice for quarter ending May07 means the £1995 is for Mar, Apr and May. Therefore you only need to accrue for Mar 07's allocation by DR £665 at 31 Mar 07. As you mentioned Apr and May expenses are paid out in the correct year so do not need adjusting.

    In the real world you would identify which of the expenses were for Mar07, for AAT exams no other information is given so assume it is split equally between the 3 months.

    Maybe you are confused because you think Mar 07 passed two months prior and therefore concentrating on what should go in the current year's account eventhough you know you are doing an accrual for previous accounting year?

    Let me know if you want to look at more questions.
  • cbuttery1991cbuttery1991 Registered Posts: 47
    I think you are right .. I just get confused on how many years I am doing!! I have my exam on Tuesday so I'm hoping it will stick! Thanks so much for all your help!!
  • cbuttery1991cbuttery1991 Registered Posts: 47
    Just to let you know I pased my exam last Tuesday! And I exceeded accruals and payments! Thanks so much for your help! I have my costing exam tomorrow so fingers crossed for this one!!
  • N4TN4T AAT Student Posts: 191
    Well done! Good luck with tomorrow. You've got a busy January.
  • cbuttery1991cbuttery1991 Registered Posts: 47
    I also passed Costing with 94%! So happy! Indirect tax and final accounts .. any tips?
  • N4TN4T AAT Student Posts: 191
    Congratulations! Indirect tax is a matter of learning and applying the rules such as VAT registration threshold and how to complete a tax return, just a matter of doing lots of questions.

    Final accounts is taking what you've learned in accounts prep so more of double entry and accruals etc and then doing an extended trial balance. At this stage you are expected to know your double entry. The key thing is to learn what goes into the statement of financial of profit or loss and statement of financial position so learn the layouts.
  • cbuttery1991cbuttery1991 Registered Posts: 47
    I now have a question on vat! So today we were told this

    Business must notify HMRC within 30 days of the end of the month in which limit is exceeded. The business will be registered with effect from the end idol the month following the month in which the limit is exceeded

    Example of historic test of vat .. "business exceeded turnover limit on 30 June, must notify HMRC by 30 July and will be registered from 1 august.

    So I'm assuming here they get registered the day after the limit of notifying but then ...


    Question
    A business which exceeded the registration threshold under the historic test on 31 january will be required to notify HMRC by 2 March and will be registered with effect from 1 March TRUE OR FALSE. The answer is true but I thought if using the above example .. I get the notifying by 2nd March as that's 30 days but why registered from the 1st shouldn't it be 3rd?!?
  • N4TN4T AAT Student Posts: 191
    Registration is effective from the 1st of the month following notification. The month of notification is Feb so therefore reg is effective from 1 March.

    Feb is a short month the 30 days deadline is 2 Mar.

    If HMRC was notified on 2 Mar the business is liable to pay VAT from 1 Mar and not 1 Apr. (I don't think it should be 1 Apr)

    I couldn't find another scenario with February involved so my explanation is based on you giving me the answer and what I know of the historic test and a bit of common sense - my dilemma would be 1 Mar or 1 Apr. Because this problem only affects Feb I am sticking with 1Mar.

    This is a tricky one so good you got it in a practice question.
  • N4TN4T AAT Student Posts: 191
    https://gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat/vat-notice-7001-should-i-be-registered-for-vat

    4.3 states the registration date is "the first day of the second month after your taxable supplies went over the registration threshold"

    This is clearer and doesn't open to misinterpretation.
  • cbuttery1991cbuttery1991 Registered Posts: 47
    Okay so as it exceeded on 31st January the 1st of March would be when they are registered from
    Even if they didn't inform HMRC until the date of 2nd march. This sounds clearer - thanks so much! Now just reading about basic tax points and ACTUAL tax points! I take my hat off to VAT accountants!
  • cbuttery1991cbuttery1991 Registered Posts: 47
    hey there again! I am looking at Financial Accounts Prep Level 3 - I was just wondering whether when filling out the SPF for a sole trader, do he current assets and net assets have to be in any order in the exam? I have seen they are in order of liquidity but is this also true for the exam. Also I am confused about the liquidty part.. what would this mean?
  • N4TN4T AAT Student Posts: 191
    I can't remember how important it is or if you get marked down if you put it in the wrong order. I would try to learn it correctly now, less painful in the future as you don't want to pick up bad habits.

    Order of liquidity is how readily you can turn it into cash. For e.g current asset - inventories, trade receivables then cash. Cash being most liquid. Trade receivables...money owing from customers and you would expect payment within 30-60 days. Imagine how easy or difficult it would be to sell all the inventory in the warehouse.

    There's not that many so I try to memorise the order for each category. Better to get only one or two in the wrong order instead of it completely wrong. It probably wouldn't look good if you listed cash first.
  • N4TN4T AAT Student Posts: 191
    Someone mentioned in a later post that you need to get the order right in the exam! So learn it =)

    On a separate note you may wish to start another thread for new topics if you want to receive comments from others as this is still under "prepayments and accruals". However if you are happy to receive just my feedback you can PM me. Disclaimer: I am not an expert just someone who passed levels 2 and 3. :)
  • cbuttery1991cbuttery1991 Registered Posts: 47
    Thank you for that! I am going to learn it that way thank you! Oo and noted! Although you do sound like you know what you're talking about!!
  • N4TN4T AAT Student Posts: 191
    I always have trouble remembering where accruals and prepayments comes in the order (still do) so all I can suggest is commit them to memory.
  • cbuttery1991cbuttery1991 Registered Posts: 47
    Thank you! Weird thing is I can find NOTHING about the order of liquidity in the book! Could you tell me the order for liabilities please??
  • N4TN4T AAT Student Posts: 191
    Do you have Osborne books? I have Osborne AQ2013. Let me dig out my books - i dont want give you wrong information
  • cbuttery1991cbuttery1991 Registered Posts: 47
    I do yeah, I have the AQ2016 books and I cannot find anything!
  • N4TN4T AAT Student Posts: 191
    The chapters are probably called different names, but in my version it is in ch 1 - preparing financial statements. There is a small section titled "Financial statements: Points to Note"

    ",,,,,it is customary to list the assets (non-current assets and current assets) in an 'increasing order of liquidity'. In accounting liquidity means nearness to cash, so the permanent assets - i.e those that are furthest away from cash - are listed first. Premises which would take time to turn into cash, heads the list, with other non-current assets - such as shop fittings, machinery and vehicles - following.

    For current assets, the usual order start with inventory, then trade receivables, bank (if not overdrawn) then cash. The assets are listed from the most permanent to the most liquid"

    Order of liquidity is with reference to assets only, the order is less strict for liabilities, and I learn a rough format from looking at various examples in text books so I can remember what goes under it. There are further entries but these are the most common for L3.


    Here below is an example of a SFP for a sole trader
    Current Assets
    Premises
    Shop fittings
    Office Equipment
    Vehicles

    Current Assets
    Inventory
    Trade Receivables
    Less allowance for doubtful debts
    Prepayment of expenses
    Bank
    Cash

    Current Liabilities
    Trade Payables
    VAT
    Accrual of expenses
    Bank overdraft

    Non Current Liabilities
    Long term loans
  • cbuttery1991cbuttery1991 Registered Posts: 47
    Thank you so much that's a big help!! Was driving myself mad trying to find it in the book!!
  • cbuttery1991cbuttery1991 Registered Posts: 47
    I am now struggling with mark ups and margins.

    Question

    Total sales 66,000
    Total purchases 59,120
    Mark up of 20% on cost was used through year

    Calculate the value of the cost of goods sold for the year ended 31/03/07

    The answer I got is not what it says on AAT
  • N4TN4T AAT Student Posts: 191
    Based on the information you have given I calculate COS to be £55,000. Is this a practice assessment question? I expect it to be more complex involving opening and closing inventory for L3.

    Was this part of a bigger question? I think something is missing. What was the answer?
  • cbuttery1991cbuttery1991 Registered Posts: 47
    That is the right answer! I was massively over complicating it!! The questions are very inconsistent on this one so it's quite hard to revise. These mark ups and margins are not sinking in though! How do you remember them? Any tips?
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