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    Accounting Accruals and Prepayments Exercise

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    Adelyne
    The document provides information and questions about various accounting concepts and transactions, including preparing ledger accounts, applying the accruals concept, and preparing income statements. Specifically, it discusses preparing accounts for motor expenses, rent, electricity, sales, drawings, wages, and business rates. It also provides information on inventory valuations, prepaid and accrued expenses, and allocating expenses between business and personal use to prepare an income statement.

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    © All Rights Reserved
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    Accounting Accruals and Prepayments Exercise

    Uploaded by

    Adelyne
    3K views5 pages
    The document provides information and questions about various accounting concepts and transactions, including preparing ledger accounts, applying the accruals concept, and preparing income statements. Specifically, it discusses preparing accounts for motor expenses, rent, electricity, sales, drawings, wages, and business rates. It also provides information on inventory valuations, prepaid and accrued expenses, and allocating expenses between business and personal use to prepare an income statement.

    Original Description:

    Taken from the Cambridge IGCSE Accounting Textbook

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    The document provides information and questions about various accounting concepts and transactions, including preparing ledger accounts, applying the accruals concept, and preparing income statements. Specifically, it discusses preparing accounts for motor expenses, rent, electricity, sales, drawings, wages, and business rates. It also provides information on inventory valuations, prepaid and accrued expenses, and allocating expenses between business and personal use to prepare an income statement.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    3K views5 pages

    Accounting Accruals and Prepayments Exercise

    Uploaded by

    Adelyne
    The document provides information and questions about various accounting concepts and transactions, including preparing ledger accounts, applying the accruals concept, and preparing income statements. Specifically, it discusses preparing accounts for motor expenses, rent, electricity, sales, drawings, wages, and business rates. It also provides information on inventory valuations, prepaid and accrued expenses, and allocating expenses between business and personal use to prepare an income statement.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    At a glance
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    The key takeaways are the concepts of accrual accounting and how it ensures expenses are matched with the revenues they help generate through the matching principle. Accruals impact financial statements by recording revenues and expenses in the periods they are earned or incurred rather than when cash is received or paid. The accrual concept matches expenses with revenues through the matching principle. Prepaid and accrued expenses are reported on the balance sheet as either assets or liabilities depending on whether a payment has been made or received in advance.

    Accruals impact financial statements by ensuring revenues and expenses are recorded in the correct periods, even if no cash has changed hands yet. This provides a more accurate picture of financial performance by matching revenues with the expenses that helped generate those revenues as opposed to when cash is paid or received.

    The matching principle ensures expenses are matched with the revenues they help generate. This provides more useful information to assess profitability and performance by attributing costs to the period in which the associated revenues were also earned.

    Other Payables and other Receivables

    161

    Review Questions

    1. Rupa made the following bank payments in the month of March


    2008.
    $
    March 6 Motor expenses – repairs 120
    12 Motor expenses – tyres 150
    The bill for repairs had been received in February and $120 had been
    accrued in the motor expenses account at the end of the month.
    Rupa received a bill for motor fuel for $80 on 219 March but the bill
    was not paid until 7 April.
    Required
    (a) Prepare the motor expenses account in Rupa’s ledger for the
    month of March 2009. Show the amount transferred to the
    income statement for the month and the balance brought down
    on 1 April.
    Mopsa has to pay $400 rent on her shop each month.
    She was not able to pay all the rent due in March 2009 and $150 was
    outstanding on 1 April.
    From 1 April, her landlord increased the rent to $450 each month.
    On 27 April Mopsa made a payment of rent to her landlord of $500
    in total.
    Required
    (b) Prepare the rent account in Mopsa’s ledger for the month of April
    2009. Show the amount to be transferred to the income statement
    for the month and balance brought down on 1 May.
    Andrea does not include any accrual in her electricity account for
    electricity used, and invoiced, but not paid for at the end of the
    month.
    162 IGCSE Accounting

    Required
    (c) Place a tick (✓) in one of the boxes below to show whether the
    amount for electricity in her income statement for the month will
    be
    understated
    overstated
    [IGCSE 2009]
    2. Susie is a trader. On 1 July 20-7 her inventory of stationery was
    valued at $110. During the year ended 30 June 20-8 the following
    transactions took place.
    20-7 September 1 Purchased stationery, $328, by cheque
    20-8 January 4 Purchased stationery, $95, in cash
    February 1 Received a cash refund, $15, for an overcharge
    by the stationery supplier
    Susie’s inventory of stationery on 30 June 20-8 was valued at $187.
    Write up the stationery account in Susie’s ledger for the year ended
    30 June 20-8.
    3. Amina Hassan’s financial year ends on 30 April. She sublets part of
    her premises to Mariam Kamel.
    Amina provided the following information.

    2001 $
    May 1 Mariam owed 1 month’s rent 60
    July 1 Mariam paid rent for 15 months to 30 June 2002 by cheque 900

    Prepare the rent received account as it would appear in Amina


    Hassan’s ledger for the year ended 30 April 2002. Show clearly
    the amount transferred to the income statement and the balance
    on 1 May 2002.
    [IGCSE 2002]
    *4. The following extract shows transactions recorded in Ramon’s cash
    book for the month of April 2007.
    Other Payables and other Receivables
    163

    Ramon
    Cash Book

    Date Details Cash Bank Date Details Cash Bank


    $ $ $ $
    Apl 1 Balance b/d 1100 2450 Apl 1 Rent 900
    3 Sales 500 6 Electricity 120
    12 Ahmed 1200 21 Drawings 800
    29 Ahmed 650 29 Wages 700
    ____ ____ 30 Balance c/d 100 3280
    1600 4300 1600 4300
    May 1 Balance b/d 100 3280
    Additional information:
    1. The balance on Ahmed’s account in the ledger on 1 April was $2850 Dr.
    2. Rent of $900 is payable quarterly in advance.
    3. An electricity bill for $60 was accrued at 30 April.

    Required
    Write up the following accounts in Ramon’s ledger for the month of
    April 2007.
    Show the amounts transferred to Ramon’s income statement for the
    month and any balances at 1 May.
    (a) Sales account (b) Ahmed account (c) Rent account
    (d) Electricity account (e) Drawings account (f) Wages account
    [IGCSE 2007]
    5. The following account appears in Ruth Tembe’s nominal (general)
    ledger.
    Business rates account

    Date Details folio $ Date Details folio $


    2008 2008
    Sept 30 Bank 1490 Aug 1 Balance b/d 90
    2009
    July 31 Income
    statement 1200
    ____ Balance c/d 200
    1490 1490
    2009
    Aug 1 Balance b/d 200
    164 IGCSE Accounting

    Required
    (a) Explain each of the entries in the business rates account as it
    appears in the nominal (general) ledger of Ruth Tempe. State
    where the double entry for each transaction would be made.
    The first one has been completed as an example.
    2008 Aug 1 Balance $90
    Explanation This is the amount owing for business rates for the
    previous financial year.
    Double entry Debit business rates account for the year ended 31
    July 2008
    2008 Sept 30 Bank $12490
    2009 July 31 Income statement $1200
    (b) (i) Explain the significance of the $200 shown at the end of the
    business rates account.
    (ii) State where this amount will appear in Ruth Tembe’s balance
    sheet at 31 July 2009.
    [IGCSE 2009]
    6. Elmer Gantry is a self-employed builder whose financial year ends
    on 30 September. His trial balance drawn up on 30 September 2003
    included the following balances.
    Dr Cr
    $ $
    Revenue (sales) 100 000
    Purchases 66 000
    Purchases returns 4 000
    Inventory 1 October 2002 12 000
    Insurance 4 250
    Wages 6 000
    General expenses 1 000
    Motor expenses 2 600
    Rent 5 000
    You are given the following additional information.
    1. On 30 September 2003 insurance prepaid was $250 and motor
    expenses due but unpaid were $400.
    Other Payables and other Receivables
    165

    2. Inventory on 30 September 2003 was $9000.


    (a) Prepare Elmer Gantry’s income statement for the year ended 30
    September 2003.
    (b) (i) State what is meant by the accounting principle of accruals.
    (ii) Explain how the accruals principle is applied to insurance in
    Elmer’s income statement.
    [Based on IGCSE 2003]
    *7. Miriam is a business consultant. She provided the following
    information at the end of her first year on 30 September 20-4.
    $
    Office expenses 7 250
    Wages 27 500
    Insurance 1 800
    Property tax 800
    Motor vehicle expenses 1 840
    Fees received from clients 40 900
    Commission received 5 600

    The following information is also available.


    1. The office expenses include stationery. On 30 September 20-4 the
    inventory of stationery was valued at $250.
    2. It is estimated that half of the motor vehicle expenses relate to
    Miriam’s personal use.
    3. On 30 September 20-4
    Property tax due amounted to $160
    Office expenses due amounted to $45
    Commission receivable amounted to $250.
    4. The insurance covers a period of 15 months to 31 December
    20-4.
    5. Bank charges, $115, have not been entered in the accounting
    records.
    Prepare Miriam’s income statement for the year ended
    30 September 20-4.

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