Monday, 14 March 2022

A basic test on prepaid income

 

A basic test on prepaid income:

 

You are working on the accounting records of a business for the year ended 31 March 20X7. You are looking at the rent income for the year and this includes receipts for the following periods:

 

Apr 20X6 – Mar 20X7

£5,040

Apr 20X6 – Jun 20X7

£5,625

 

Identify the prepaid income that need to be posted into the accounts?

 

Account name

Amount (£)

Dr/ Cr

 

 

 

 

 

 



A basic test on accrued income


A basic test on accrued income:

 

You are working on the accounting records of a business for the year ended 31 March 20X7. You are looking at the rent income for the year and this includes receipts for the following periods:

 

Apr 20X6 – Jan 20X7

£5,900

Apr 20X6 – May 20X7

£6,720

 

Identify the accrued income that needs to be posted into the accounts?

 

Account name

Amount (£)

Dr/ Cr

 

 

 

 

 

 



Wednesday, 9 March 2022

A basic test on prepayments

 

A basic test on prepayments:

 

You are working on the accounting records of a business for the year ended 31 March 20X7. You are looking at the rent expense for the year and this includes payments for the following periods:

 

Apr 20X6 – May 20X7- Office 1

£5,040

Apr 20X6 – Jan 20X7- Office 2

£5,500

Jul 20X6 – Jun 20X7- New Office

£7,380

 

Identify the prepayments that need to be posted into the accounts?

 

Account name

Amount (£)

Dr/ Cr

 

 

 

 

 

 



Monday, 21 February 2022

A basic test on accruals

 

A basic test on accruals:

 

You are working on the accounting records of a business for the year ended 31 March 20X7. You are looking at the rent expense for the year and this includes payments for the following periods:

 

Apr 20X6 – May 20X7- Office 1

£5,040

Apr 20X6 – Jan 20X7- Office 2

£5,500

 

Identify the accruals that need to be posted into the accounts?

 

Account name

Amount (£)

Dr/ Cr

 

 

 

 

 

 



Wednesday, 16 February 2022

Prepaid Income

 

Prepaid income is an amount received in advance for a sundry income which relates to an accounting period after the year end.

 

In accounting for prepaid income, the effect that needs to occur will be to reduce the overpayment in income in an attempt to account for only the income earned in that accounting period and then to increase the liability in that accounting period, recognising that the business acts as a custodian of that amount paid in advance, so it should not be accounted for as income, rather it is a liability in the hands of the business until it earns that amount of money.

Example:

You are working on the accounting records of a manufacturing business for the year ended 30 June 20X6. You are looking at the rental income for the year and this shows receipts for the following periods:

 

July 20X5 – July 20X6

   £1,105

July 20X5 – September 20X6

   £1,590

 

Calculate the value of the adjustment required for the rental income account as at 30 June 20X6 and show the journal entry needed for the relevant adjustment.

Solution:

 

 

Prepaid income

July 20X5 – July 20X6

   £1,105

£1105/13x1= £85

July 20X5 – September 20X6

   £1,590

£1590/15x3=£318

Total prepaid income adjustment needed

 

£1068+£330=£403

                      

Account name

Amount (£)

Dr/ Cr

Rental income

403

Dr

Prepaid income

403

Cr



Prepaid Income - YouTube

Tuesday, 8 February 2022

Accrued Income

Accrued income is a sundry income amount outstanding and yet to be received by the end of an accounting period, so has not been entered into the ledger accounts.

 

In accounting for accrued income, the effect that needs to occur will be to increase the relevant income in an attempt to account for the total income due to the business in that accounting period and then to increase the asset- accrued income which is like debtors in that accounting period, recognising that the business is owed that amount.

Example:

You are working on the accounting records of a manufacturing business for the year ended 30 June 20X6. You are looking at the rental income for the year and this shows receipts for the following periods:

 

July 20X5 – March 20X6

£990

July 20X5 – December 20X5

   £1,068

 

Calculate the value of the adjustment required for the rental income account as at 30 June 20X6 and show the journal entry needed for the relevant adjustment.

Solution:

 

 

Accrued income

July 20X5 – March 20X6

£990

£990/9x3= £330

July 20X5 – December 20X5

   £1,068

£1068/6x6=£1068

Total accrued income adjustment needed

 

£1068+£330=£1398

                      

Account name

Amount (£)

Dr/ Cr

Accrued income

1,398

Dr

Rental income

1,398

Cr


Accrued Income - YouTube

Tuesday, 1 February 2022

Prepayments

 

A prepayment is an amount paid in advance for an expense which relates to an accounting period after the year end.

In accounting for prepayments, the effect that needs to occur will be to reduce the relevant expenditure in an attempt to account for the transactions which have been overpaid and then to increase the asset in that accounting period, recognising that the business could be owed that amount.



Example:

You are working on the accounting records of a business for the year ended 31 January 20X7. You are looking at the business rates expense for the year and this shows payments for the following periods:

                                                 

Feb 20X6 – Mar 20X7- Office 1

   £1,568

Feb 20X6 – Feb 20X7- Office 2

   £1,287

 

Calculate the value of the adjustment required for the business rates account as at 31 January 20X7 and show the journal entry needed for the relevant adjustment.

Solution:

 

 

Prepayments

Feb 20X6 – Mar 20X7- Office 1

   £1,568

£1568/14x2= £224

Feb 20X6 – Feb 20X6- Office 2

   £1,287

£1287/13x1=99

Total prepayments adjustment needed

 

£224+£99=£323

                      

Account name

Amount (£)

Dr/ Cr

Prepayments

323

Dr

Business rates

323

Cr


Prepayments - YouTube

Monday, 24 January 2022

Accruals

 



An accrual is an amount outstanding for payment by the end of an accounting period, so has not been entered into the ledger accounts.

 

In accounting for accruals, the effect that needs to occur will be to increase the relevant expenditure in an attempt to account for the outstanding transactions which may not have been paid for and then to increase the liability in that accounting period, recognising that the business owes that amount.


Example:

You are working on the accounting records of a business for the year ended 31 January 20X7. You are looking at the business rates expense for the year and this shows payments for the following periods:

 

February 20X6 – September 20X6- Office 1

£980

February 20X6 – December 20X6- Office 2

   £1,054

 

Calculate the value of the adjustment required for the business rates account as at 31 January 20X7 and show the journal entry needed for the relevant adjustment.

Solution:

 

 

Accruals

February 20X6 – September 20X6- Office 1

£980

£980/8x4= £490

February 20X6 – December 20X6- Office 2

   £1,054

£1054/11x1=95

Total accruals adjustment needed

 

£490+£95=£585

                      

Account name

Amount (£)

Dr/ Cr

Business rates

585

Dr

Accruals

585

Cr