Hi everyone,

I was hoping to get an explanation on how to tackle this question please.

At the end of an accounting period a sole trader realised that he had received some rental income in advance relating to the next period. What is the double entry required to adjust for this?

Dr other payables Cr rental income
Dr rental income Cr other payables
Dr other receivables Cr rental income
Dr rental income Cr other receivables

Thank you so much in advance


  • Zoynal98
    Zoynal98 MAAT, AATQB Posts: 65

    I believe it would be:

    Dr Rental income Cr Other payables

    Please see below the logic:

    The sole trader received too much money therefore he will essentially need to give back the amount of money that has been prepaid to him.

    Example in this context:

    A tenant is usually charged £1,200 a year for rent. However he paid £1,400 for the year.

    Journal entries:

    Annual Rent: £1,200
    Cash Received: £1,400

    Dr Bank: £1,400 (Cash received; should be £1,200 but prepaid by £200)
    Cr Rental Income: £1,200 (Usual amount of rent the sole trader should receive)

    Cr Other payables: £200 (Prepaid income)
    Dr Rental Income: £200 (Other payables)

    So next year Rental Income will have a balance b/f amount of £1,000 as the tenant paid £200 more.

    Please let me know if the answer is correct...I'm a bit rusty on this topic so it may be incorrect, apologies in advance if it is.

    Hope this helps.
  • RecovR_Massage
    RecovR_Massage AAT Student Posts: 7
    Thanks Zoynal98, this is a great explanation and is very helpful.

    Please could you also help with this?

    On 1 April 20X4 the balance b/f on a sole trader's allowance for doubtful debts (ADD) account was £433. This included an amount of £56 in respect of a specific debt which was subsequently recovered. On 31 March 20X5 the trader required a general allowance for doubtful debts of £605, but no further debts required a specific allowance. The allowance for doubtful debts adjustment (ADDA) account will show a ______ balance of _________
  • Zoynal98
    Zoynal98 MAAT, AATQB Posts: 65
    edited March 2017
    Ignore the £56 as this will not relate to the journal entries in the ADD/ADDA accounts.
    Allowance for Doubtful Debts account will have:
    Cr £433 (bal b/f) (Contra-asset, an asset but with a credit balance) (remember it will always be a credit balance)
    Cr £172 (Allowance for Doubtful Debts Accounts), you need to increase the ADD account to £605 therefore you will need a bal c/d of £605 and a bal b/d of £605 for the next period (bal b/f for next period will be £605).

    Allowance for Doubtful Debts Adjustment account will have:
    Dr £172 (The double entry of the £172 will correspond to the Allowance for Doubtful Debts Adjustment account as a Dr).

    Hope this helps.
  • Bertie
    Bertie Registered Posts: 376
    All I'll add is that - it comes back to the accruals concept, to match income and expenditure to the period it is owed or earned, not when received.

    To give a real life example, using your initial question -

    The money you receive in (from Mr or Mrs X) advance would be known as a POA (payment on account) which would, if using Sage 50 (for example) land in deferred income, within the current liabilities section of the B/S.

    - During the next period you'd raise the invoice for Mr or Mrs X for rental.
    - Search the system for the POA, match that with the invoice.
    - Deferred will be wiped and the value will show as rental income.

  • RecovR_Massage
    RecovR_Massage AAT Student Posts: 7
    Thanks Zoynal98 and Bertie, really appreciate you both taking time out to help others.
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