Mark FieldingPritchard mefieldingcom 1 Principle Sally moves to New York from London She goes to work by metro On 1 January 2016 she buys a one year metrosubwayunderground ticket paying in cash 1200 The ticket allows unlimited travel all year ID: 606483
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Slide1
Accruals & Prepayments
Mark Fielding-Pritchard
mefielding.com
1Slide2
Principle
Sally moves to New York from London. She goes to work by metro. On 1 January
2016 she buys a one year metro/subway/underground ticket paying in cash $1200. The ticket allows unlimited travel all year,
2016,
on the metro.
When her mother asks how much does it cost to travel on the metro does Sally answerIt costs $1200 on 1 January but it is free the rest of the year, orDoes she answer $100 a month?1) Is the cash basis, 2) is the accruals. Accruals basis recognizes expenses when the arise, not when they are incurred
mefielding.com
2Slide3
Accruals
An accrual is an expense we have incurred, but where we have not yet received the invoice ie
mobile phone
mefielding.com
3
Dr
Cr
Accrual
Telephone
12
Accruals
12
You talk today for 2 hours on 31/12 on your mobile. The bill will come in 1 week. How much is the month end accrual if you pay 10c a minute?
Accruals are shown as a current liability in the BSSlide4
Interactive Question 1 P234
mefielding.com4
2002
Cash paid
1060.55
Accrual
327.68
491.52
x 2/3
Expense
1388.23
Journal
Dr Electric 327.68
Cr Accruals 327.68Slide5
Prepayment
A prepayment is an expense we have not yet incurred, but where we have paid in advance
mefielding.com
5
Dr
Cr
Prepayment
Prepayments
100
Telephone
100
You pay in advance your mobile. You pay on 31/12 $100 for January
Remember during the year we cash account. Accruals and prepayments are a period end adjustment. When you pay your phone it will, at that time debit the expense account.
Prepayments are shown as a current asset in the BSSlide6
Reversals- Accruals See Interactive Q1.1 P234
mefielding.com
6
2002
Cash paid
1060.55
Accrual
327.68
491.52
x 2/3
Expense
1388.23
31/12/02Dr Electric 327.68
Cr Accruals 327.68
2003
Opening
Accrual
(327.68)
Cash paid
2213.39
Accrual
502.16
753.24
x 2/3
Expense
2387.87
31/12/03
Dr Electric 502.16
Cr Accruals 502.16
Reversal 1/1/03
Dr Accrual 327.68
Cr Expense 327.68Slide7
Reversals- Prepayments See Interactive Q1.1 P234
mefielding.com
7
2002
Cash paid
1060.55
Prepayment
(39.09)
117.28
x 1/3
Expense
1021.46
31/12/02Dr P’pay
39.09Cr Expense 39.09
2003
Opening
P’pay
39.09
Cash paid
2213.39
P’pay
(206.67)
620
x 1/3
Expense
2387.87
31/12/03
Dr
P’pay
206.67
Cr Expense 206.67
Reversal 1/1/03
Dr
Expense 39.09
Cr
P’pay
39.09
Assume payments made in advance !!!Slide8
Interactive Q2 P238
mefielding.com8
2006 P&L
2006 Cash
December 2005 salary
Team (12000)
0
8000
2006 Salary
Team (13200)
105600
96800
Trainee
42003500
109800
108300
Op Accrual
(8000)
Cash paid
108300
Cl Accrual
9500
109800Slide9
Interactive Q3 P239
mefielding.com9
Rental PP
Copy Ac
@31August x4
1400
500
@31August x5
Op Accrual
(500)
Op PP
1400
Cash paid Rental
9000
Cash paid Copy
6350
Cl Accrual
650
Cl PP
(1800)
15100Slide10
Interactive Q4 P241
mefielding.com10
P&L
Sales
156000
Op
Inv
10000
Purchases
65000
Carriage In
1000
Cl Inv
(13000)
(63000)
93000
Distribution (10+2)
12000
Admin (15+3-1.5)
16500
Finance
(5000)
(33500)
59500Slide11
Interactive Q4 P241
mefielding.com11
Balance Sheet Assets
NCAs
200000
Current Assets
Inventory
13000
Receivables
54000
Prepays
1500
Cash
14000
82500
282500Slide12
Interactive Q4
mefielding.com12
Balance Sheet
Liabiities
Capital
Bal
b/f
180000
c/y
59500
239500
Current Liabilities
Payables
40000
Accruals
3000
43000
282500Slide13
Interactive Q5 P241
mefielding.com13
Admin Expenses
Credit purchases
10500
Cash purchases
250
Accrual
(100)
Ppay
150
10800Slide14
Income- Deferred & Accrued
Deferred Income- payment received in advance for work we haven’t done yetAccrued income- income due to us but for which no invoice has been raised, bank interest
mefielding.com
14Slide15
Worked Example P242
mefielding.com15
Revenue
Dr
Cr
Deposits
Initial Entry
Cash
1200
Revenue
1200
31/12
Revenue1200
Deferred Income
1200
When work done
Deferred Income
1200
Revenue
1200
Bonus
Receivables
500
(
Accrued Income) Revenue
500
Cash
500
Receivables
500