Accruals & Prepayments

Expenses
Revenue expenditure (incur)
Nature – debit
Wages dr $1500
Bank cr $1500

1. Expenses are recorded when they are incurred not when paid.

1 Jan 2020 31 Dec 2020

Rent paid 1 July 2020 for 12 months $1200 by cheque

$1200/12 = $100 per month

1 July 2020 – 30 June 2021

31 Dec 2020 – 6 months x $100 = $600

I Jan 2021 – 31 July 2021 – 6 months x $100 = $600 (prepayment)

Rent

I July 2020 – 31 Dec 2020 $600 this year

1 Jan 2021 – 30 June 2021 $600 prepaid (advance)

31 Dec 2020

$1200/12 months = $100/month 6 months = $100 x 6 = $600

Rent

$ $

1 July Bank 1200 31 Dec Income statement 600

31 Dec Balance c/d (prepaid) 600

1200 1200
 Expenses

$ $
1 Jan Bal b/d (Opening prepaid) xx 1 Jan Bal b/d (Opening accrual) xx

31 Jun Bank/Cash (actual amount paid) xx 31 Dec Income statement xx

31 Dec Bal c/d (closing accrual) xx 31 Dec Bal c/d (closing prepaid) xx

xxx xxx

$ $
1 Jan Bal b/d (Opening prepaid) xx 1 Jan Bal b/d (Opening accrual) xx

31 Jun Bank/Cash (actual amount paid) xx 31 Dec Income statement xx

31 Dec Bal c/d (closing accrual) xx 31 Dec Bal c/d (closing prepaid) xx

xxx xxx

Telephone bill

$ $
2017
30 June Cash 44 2018
4 Oct Bank 56
2018 31 Mar Income Statement (balancing figure) 221
3 Jan Bank 62
31 Mar Bal c/d 59

221 221
b) $ $
Expenses
Telephone bill ($162 + $59) 221

c) Accrued expense are current liabilities.

They are recorded as “other payables” in current liabilities section of SOFP $59

1 April, May, June 30 June

July, Aug, Sep 30 Sep
Oct, Nov, Dec 31 Dec
Jan, Feb, March 31 March
Salman started a business on 1 April 2017. He receives an invoice for telephone expenses quarterly
(three months) in arrears. During the year ended 31 March 2018 his payments for expenses included
the following:
2017
30 June Telephone expenses paid in cash, $44
4 October Telephone expenses paid by credit transfer; $56 (online through bank)
2018
3 January Telephone expenses paid by credit transfer; $62 (online through bank)
An invoice for telephone expenses for $59 was received on 31 March 2018. This was for telephone
expenses up to the end of March, but was not paid until 5 April 2018.
a) Write up the telephone expenses account in Salman's nominal ledger for the year ended 31 March
2018.
b Prepare a relevant extract from Salman's income statement for the year ended 31 March 2018.
c Prepare a relevant extract from Salman's statement of financial position at 31 March 2018.

Selman started a business on 1 April 2017. Salman rented premises until July 2017 when he
purchased premises. He paid a cheque for $800 for one year's insurance for his premises on 1
July 2017.
a) Write up the insurance amount in Salman's nominal ledger for the year ended 31 March
2018.
b) Prepare a relevant extract from Salman's income statement for the year ended 31 March
2018.
 c) Prepare a relevant extract from Salman's statement of financial position at 31 March 2018.

Workings
1 April 2017 – 30 June 2017 1 quarter
1 July 2017 – 30 June 2018 1 year insurance coverage
31 March 2018 - April, May & June
Total insurance paid for 12 month $800 - 1 month’s insurance $800/12 = $66
Current financial year expense = $67 x 9 = $603
Prepayment = $67 x 3 = $201

Insurance

$ $

I July Bank 800 31 Mar Income statement 600

31 Mar Bal c/d 200

800 800

b) Expenses $ $
Insurance ($800 - $200) 600

d) Current Assets $ $
Other receivables 200

Salman started a business on 1 April 2017.

During the year ended 31 March 2018 he purchased stationery costing $113.
On 31 March 2018 the inventory of stationery was valued at $36. (prepaid)
Write up the stationery account in Salman’s nominal ledger for the year ended 31 March 2018.
Stationary (expense)
 $ $

31 Mar Bank 113

31 Mar Income statement 77
31 Mar Bal c/d 36

113 113

$ $

1 Apr Bal b/d (Arrears) xx 1 Apr Bal b/d (Prepaid)

xx
31 Mar Income Statement xx
31 Mar Cash/Bank (actual payments) xx
31 Mar Bal c/d (Prepaid) xx
31 Mar Bal c/d (Arrears) xx

Income

Only c/ds or closing value go in SOFP

Prepaid income – Current Liability (other payables)
Accrued Income – Current Assets (other receivables)

Salman started a business on 1 April 2017.

On that date he also agreed to act as an agent for Kohli & Company. Salman was to be paid a
commission six monthly in arrears on all goods sold for Kohli & Company.
Commission of $120 was received by direct debit on 1 October 2017 and $135 was received by direct
debit on 2 April 2018.
a Write up the commission receivable account in Salman’s nominal ledger for the year ended 31
March 2018.
b Prepare a relevant extract from Salman’s income statement for the year ended 31 March 20–8.
Commission Receivable
 $ $
2017

31 Mar Income Statement 255 1 Oct bank 120

2018
31 Mar bal c/d (Arrears) 135

255 255

Salman’s financial year ends on 31 March. (1 april)

He acts as an agent for Kohli & Company and is paid a commission six monthly in arrears on all goods
sold for Kohli & Company.
On 1 April 2018 the commission receivable account in Salman’s nominal ledger showed a debit
balance of $135.
During the year ended 31 March 2019 he received direct debits for commission as follows:
2018
2 April $135
1 October $145

At 31 March 2019 commission due but not yet received amounted to $156.
Write up the commission receivable account in Salman’s nominal ledger for the year ended 31 March
2019.

$ $
2018 2018
1 Apr bal b/d 135 2 Apr Bank 135
2019 1 Oct Bank 145
31 Mar Income Statement 301 2019
31 Mar bal c/d 156
436 436

Salman’s financial year ends on 31 March.

He rents part of his premises to another trader at an annual rent of $1 000/4 = 250, payable quarterly
in advance. On 1 April 2018 the rent receivable account in Salman’s nominal ledger showed a credit
balance of $250. The tenant paid rent of $250 by direct debit on 1 July 2018 and 2 October 2018. The
rent due on 1 January 2019 was not received until 2 April 2019.
Write up the rent receivable account in Salman’s nominal ledger for the year ended 31 March 2019.
Rent receivable

$ $
2018
2019 1 April bal b/d 250
31 March Income statement 1000 1 July bank 250
2 Oct bank 250
2019
31 Mar bal c/d 250
1000 1000

The following information is provided:

2016
Jan 1 Commission, $94, was owing to Whabi & Company
Dec 31
Commission, $1 350, was received
Commission, $76, was owing to Whabi & Company
2017
Dec 31
Commission, $1 480, was received
For each of the years ended 31 December 2016 and 31 December 2017 state:
a the amount shown for commission receivable in the income statement
b the amount (if any) shown for commission receivable in the statement of financial position,
indicating whether it is a current asset or a current liability.
Commission receivable

$ $
2016 2016
1 Apr bal b/d 94 31 Dec Bank 1350

31 Dec Income statement 1332 31 Dec bal c/d 76

1426 1426

2017 2017
1 Jan Bal b/d 76 31 Dec Bank 1480

31 Dec Income Statements 1404

1480 1480