Accrules...what am i not undestaing about this question

nadia48
nadia48 Registered Posts: 13 New contributor 🐸
hi,

could you all be kind enough to look at the question below along with the answer and tell me how and where to £1000 comes from.

Many thanks!




Comments

  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    The £3,000 is for the quarter ended 30 June. The business year end is 31st May. This means that 1 month of the quarter is not in the current year. 3000/3 = £1,000
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • annefoth
    annefoth Registered Posts: 39
    I am ok with the £1000 but I don’t understand why there is a balance brought down on the expense account
    Also is the rent payable ledger account the pre paid expenses account
    I am currently studying accruals and prepayments and didn’t think there would be a balance brought down in a sopl account
    At what stage are we as I am thinking there is a balance brought down in the accrued or prepaid account which is cancelled out by an income or expense
  • annefoth
    annefoth Registered Posts: 39
    Ignore that about the rent payable ledger account
    I realise that means the rent expense account
    For some reason I read it as a control account and thought it was like plca
    The way I feel at the moment I don’t think I would answer my name right
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    Hi Anna

    I couldn't quite tell what your question was so I've broken down the question.

    The Rent Payable ledger account is a control account.

    Key words to look for on control accounts include payable and receivable.

    The different transactions would have worked as follows for the double entry:

    Previous year:

    Prepayment made

    Debit - Rent Payable account £2,500
    Credit - Rent Expense account £2,500

    This is removing the prepaid rent from last years expense account as it is for this year.

    This year:

    Rent paid

    Debit - Rent expense account £11,000
    Credit - Bank £11,000

    This is the payments from the bank during the year

    Debit - Rent Expense £2,000
    Debit - Rent Payable £1,000
    Credit - Bank £3,000

    This separates the last payment into current year and next years prepayment.

    In practice this would likely be done as a whole very differently with the bank payments been made to the control account and the invoices for the year going to the expense account and against the control.

    Hope this helps
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • annefoth
    annefoth Registered Posts: 39
    Thank you so much
    Is the control account what I have learnt at level 3 to be the prepaid expense account
    Also at what stage are we in the financial year
    I don’t know if at the end of year when making adjustments for the trial balance or at the start of the next financial year when reversing
    Is the brought down balance they mention what we cancel out when we have entered the reversal entry in the expense account then do the opposite entry in the prepaid expense account
  • annefoth
    annefoth Registered Posts: 39
    Also are they asking for entries to go into the rent payables account or the rent expense account as the answers seems to contradict that they have asked to make entries as appropriate in the rent payables
    Can you show what entries you would put in both the rent payables and rent expense accounts please
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    So you can have multiple control accounts for prepayments and accruals. In the statements they will be summarized into just prepayments and accruals and you'll keep a separate schedule for the individual account balances. (Kind of like the sales ledger)

    In the question the year ended in May and we're looking at a payment that includes sums for after that date.

    So when you deal with a prepayment/accruals you essentially have 2 parts.

    1. Reversal of last years

    When doing this you put the accrual or prepayment back into/out of the appropriate expense/income account.

    Prepayments, made by the company, you have already paid part of this years bill so it was removed from last years expense and becomes a debit amount. When you reverse it you Credit the prepayment account and Debit the expense.

    For accruals the Debit and Credit will be flipped as you need to take out the expense that relates to the previous year.

    Also remember that if you're talking about income the Debits/Credits will be flipped as well since if a customer pays you in advance you now owe them the service.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • annefoth
    annefoth Registered Posts: 39
    Thank you
    I kind of get the process but this particular question threw me with talking about a balance brought down on what I thought was the expense account going off their answer
    And also then talking about making an entry in the expense account for iro the balance brought down and also rent expense entry of £1000 being on the credit side of the expense account when the question stated to show what entries would go in the rent payable account
    I had been taught it was the prepaid expenses account that was used opposite the expenses account to account for pre paid expenses
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    It depends on the complexity of the account. Control accounts can flip between Debit and Credit depending on whether they prepay or accrue the expenses.

    When it comes to the actual accounts and TB it's likely the rent payable will go into the prepayments account in this situation. But there would still need to be the separate accounts to breakdown the figure. Just like you'll have come across with the SLCA and the customer ledger.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
Privacy Policy