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Week 3 Accruals and Prepayments. Aims To introduce the accruals concept and its effects on the financial statements. Objectives At the end of these sessions,

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Presentation on theme: "Week 3 Accruals and Prepayments. Aims To introduce the accruals concept and its effects on the financial statements. Objectives At the end of these sessions,"— Presentation transcript:

1 Week 3 Accruals and Prepayments

2 Aims To introduce the accruals concept and its effects on the financial statements. Objectives At the end of these sessions, you should be able to: 1. Describe the purpose of the accruals concept and how it affects the financial statements. 2. Make the necessary adjustments to account for any year end accruals and prepayments in both the main ledger and the final accounts. 3. Complete the ETB, making the necessary adjustments for any accruals and prepayments and produce the final accounts.

3 Week 3 Accruals and Prepayments

4

5 Definition An expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts.

6 20X0 JanFebMarAprMayJunJulAugSepOctNovDec 20X1 JanFebMarAprMayJunJulAugSepOctNovDec 20X2 JanFebMarAprMayJunJulAugSepOctNovDec

7 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Energy Costs 31/12/X5Balance b/d675.02

8 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Energy Costs 31/12/X5Balance b/d675.02 31/12/X557.85

9 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Energy Costs 31/12/X5Balance b/d675.02 31/12/X557.85 Accruals 31/12/X5 Energy Costs 57.85 To P & L Account as an EXPENSE To Balance sheet as a LIABILITY

10 Summary of posting:  Debit the expense account to increase the expense to reflect the fact that an expense has been incurred; and Credit an accruals account to reflect the fact that there is a liability for the expense. Your Journal would be: Dr Cr DrEnergy Costs57.85 CrAccruals57.85 ‘Being energy costs not invoiced for at year end’

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12 Shop Rent 20X8 £ £ 31/3Cash3,000 29/6Cash3,000 2/10Cash3,000

13 Shop Rent 20X8 £ £ 31/3Cash3,000 29/6Cash3,000 2/10Cash3,000 31/12Accrual3,000

14 Shop Rent 20X8 £ £ 31/3Cash3,000 29/6Cash3,000 2/10Cash3,000 31/12Accrual3,000 12,000

15 Shop Rent 20X8 £ £ 31/3Cash3,000 29/6Cash3,000 2/10Cash3,000 31/12Accrual3,000 31/12P & L A/C12,000

16 Shop Rent 20X8 £ £ 31/3Cash3,000 29/6Cash3,000 2/10Cash3,000 31/12Accrual3,000 31/12P & L A/C12,000 1/1Accrual b/d3,000

17 Telephone 20X8 £ £

18 Telephone 20X8 £ £ 31 MarCash845

19 Telephone 20X8 £ £ 31 MarCash845 31 MarAccrual170

20 Telephone 20X8 £ £ 31 MarCash845 31 MarAccrual170 31 MarP & L A/C 1015

21 Telephone 20X8 £ £ 31 MarCash845 31 MarAccrual170 31 MarP & L A/C 1015 1AprAccrual b/d170

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24 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Electricity Bills are received quarterly Cost to end October£5000 (Year end 31/12/2014) 2014 JanFebMarAprMayJunJulAugSepOctNovDec 2015 JanFebMarAprMayJunJulAugSepOctNovDec

25 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 2015 JanFebMarAprMayJunJulAugSepOctNovDec

26 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Bill for £1800 covering quarter ending January 2015 is received in February ‘15 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 2015 JanFebMarAprMayJunJulAugSepOctNovDec

27 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Bill for £1800 covering quarter ending January 2015 is received in February ‘15 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 2015 JanFebMarAprMayJunJulAugSepOctNovDec

28 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts Monthly share of £1800 ÷ 3 x 2 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 2015 JanFebMarAprMayJunJulAugSepOctNovDec

29 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts 2014 share of £1800 ÷ 3 x 2 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 600 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600

30 A n expense that has been incurred during the period but has not been paid for by the period end and has therefore not been entered in the ledger accounts 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 600 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600 £1200 electricity cost is accrued

31 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 600 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600 £1200 electricity cost is accrued Energy Costs 31/12Bank5000 Accruals

32 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 600 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600 £1200 electricity cost is accrued Electricity Costs 31/12Bank5,000 31/12Accrual1,200 Accruals

33 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 600 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600 £1200 electricity cost is accrued Electricity Costs 31/12Bank5,000 31/12Accrual1,200 Accruals 31/12Electricity1,200

34 2014 JanFebMarAprMayJunJulAugSepOctNovDec 500 600 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600 £1200 electricity cost is accrued Electricity Costs 31/12Bank5,000 31/12Accrual1,200 31/12To SOCI 6200 6,200 Accruals 31/12Electricity1,200

35 2015 JanFebMarAprMayJunJulAugSepOctNovDec 600 £1200 electricity cost accrued is now the b/d balance Electricity Costs 1/1Bal b/d1,200 Accruals 1/12Electricity1,200 31/12Electricity1,200

36 Insurance Costs On 1 st March 20X7 paid £1500 for 12 months Accruals 20X8 July AugSepOctNovDecJanFebMarAprMay June 20X9 July AugSepOctNovDecJanFebMarAprMay June

37 July AugSepOctNovDecJanFebMarAprMay June Electricity Costs Accruals

38 July AugSepOctNovDecJanFebMarAprMay June Electricity Costs 1/7Bal b/d 320 Accruals

39 July AugSepOctNovDecJanFebMarAprMay June Electricity Costs 30/6Bank13401/7Bal b/d 320 Accruals

40 July AugSepOctNovDecJanFebMarAprMay June Electricity Costs 30/6Bank13401/7Bal b/d 320 30/6Acc (May)180 30/6Accr (June)150 Accruals

41 July AugSepOctNovDecJanFebMarAprMay June Electricity Costs 30/6Bank13401/7Bal b/d 320 30/6Acc (May)180 30/6Accr (June)150 Accruals 30/6 Electric Accrued330

42 Insurance Costs Prepayment 20X8 July AugSepOctNovDecJanFebMarAprMay June 20X9 July AugSepOctNovDecJanFebMarAprMay June

43 Insurance Costs Prepayment 20X8 July AugSepOctNovDecJanFebMarAprMay June 125 20X9 July AugSepOctNovDecJanFebMarAprMay June

44 Insurance Costs 1 JulyBal b/f1000 Prepayment 20X8 July AugSepOctNovDecJanFebMarAprMay June 125 20X9 July AugSepOctNovDecJanFebMarAprMay June

45 Insurance Costs 1 JulyBal b/f1000 1 MarBank1800 Prepayment 20X8 July AugSepOctNovDecJanFebMarAprMay June 125 150 20X9 July AugSepOctNovDecJanFebMarAprMay June 150

46 Insurance Costs 1 JulyBal b/f1000 1 MarBank1800 Prepayment 20X8 July AugSepOctNovDecJanFebMarAprMay June 125 150 20X9 July AugSepOctNovDecJanFebMarAprMay June 150

47 Insurance Costs 1 JulyBal b/f1000 1 MarBank1800 Prepayment 20X8 July AugSepOctNovDecJanFebMarAprMay June 125 150 20X9 July AugSepOctNovDecJanFebMarAprMay June 150

48 Insurance Costs 1 JulyBal b/f100030/6Prepaid1200 1 MarBank1800 Prepayment 30/6Insurance1200 20X7 July AugSepOctNovDecJanFebMarAprMay June 125 150 20X8 July AugSepOctNovDecJanFebMarAprMay June 150

49 Insurance Costs 1 JulyBal b/f100030JunePrepaid1200 1 MarBank1800 2800 Prepayment 30/6Insurance1200 20X7 July AugSepOctNovDecJanFebMarAprMay June 125 150 20X8 July AugSepOctNovDecJanFebMarAprMay June 150

50 Insurance Costs 1 JulyBal b/f100030 JunePrepaid1200 1 MarBank1800Xfer to IS 1600 2800 Prepayment 30/6Insurance1200 20X7 July AugSepOctNovDecJanFebMarAprMay June 125 150 20X8 July AugSepOctNovDecJanFebMarAprMay June 150

51 Rates Rent Rental Income

52 Rates Bal b/d120 Rent Rental Income

53 Rates Bal b/d120 Rent Bal b/d800 Rental Income

54 Rates Bal b/d120 Rent Bal b/d800 Rental Income


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