Practise Assesment 2: Question 2

AAT_123

Hi,

I was wondering if anyone could help me with a certain aspect of question 2, involving the calculation for trade and other receivables.

It states a debit of 1506 on the trial balance for prepayments and a balance of 35474 for trade receivables.

On the answers given by AAT it states that this means a balance of 36980 for trade and other receivables.

However, seeing as the prepayments is on the debit side of the trial balance, would this not refer to a prepayment of expenses and have nothing to do with trade receivables?

hal978

Yes they are a prepayment of expenses, and if they are on the debit side they are a current asset like trade receivables are.
Effectively it means that expenses were overpaid for that period, so the amount is owed to the company for that period.

AAT_123

Thanks for the explanation

Kind of, I just don't understand why it is added on to trade receivables and not deducted from trade payables?

Pian32

The best way to think of that is that you are still to receive the service as part of trade.