8/19/2019 Week 6 Main Accruals & Prepayments

1/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.1

ha!ter 28

 Accruals and !re!a"ments #or#inancial statements

8/19/2019 Week 6 Main Accruals & Prepayments

2/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.2

Learning o$%ecti&es

 A#ter "ou ha&e studied this cha!ter, "oushould $e a$le to'

 Ad%ust e(!ense accounts #or accruals and

!re!a"ments Sho) accruals, !re!a"ments in the

statement o# #inancial !osition

8/19/2019 Week 6 Main Accruals & Prepayments

3/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.*

Learning o$%ecti&es +ontinued

 Ascertain the amounts o# e(!ense andre&enue items to $e sho)n in the incomestatement a#ter making ad%ustments #or

accruals and !re!a"ments

8/19/2019 Week 6 Main Accruals & Prepayments

4/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.-

Learning o$%ecti&es +ontinued

Pre!are accrual and !re!a"ment entriesto the accounts using t)o di##erentmethods

8/19/2019 Week 6 Main Accruals & Prepayments

5/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.

/he #inancial statements

/he #inancial statements need to containthe e(!enditure relating to the !eriod.

/here#ore, i# e(!enditure is o)ing or has

$een o&er!aid, an ad%ustment is needed.

8/19/2019 Week 6 Main Accruals & Prepayments

6/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.

/he #inancial statements +ontinued

E(am!le /)o $usinesses are renting$uildings and are charged ,000 !er "ear.

3usiness A !a"s ,000 in the "ear. 4t

there#ore o)es 1,000, $ut the rente(!ense in the income statement must $esho)n as ,000.+5atching Princi!le

3usiness 3 !a"s ,00 in the "ear. 4t hasthere#ore o&er!aid 00, $ut the rente(!ense in the income statement must $e

sho)n as ,000.

8/19/2019 Week 6 Main Accruals & Prepayments

7/14Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.6

 Accrued e(!enses

7ent o# -,000 !er "ear as !a"a$le at theend o# e&er" three months. /he rent )as!aid on time in 5arch, $ut this is not

al)a"s the case.

8/19/2019 Week 6 Main Accruals & Prepayments

8/14

8/19/2019 Week 6 Main Accruals & Prepayments

9/14Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.:

 Accrued e(!enses +ontinued

/he true rent #igure #or the "ear must $esho)n in the !ro#it and loss account

8/19/2019 Week 6 Main Accruals & Prepayments

10/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.10

 Accrued e(!enses +ontinued

/he accrued rent e(!ense must $e sho)non the rent account

8/19/2019 Week 6 Main Accruals & Prepayments

11/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.11

Pre!aid e(!enses

4nsurance #or a $usiness is at the rate o#8-0 a "ear, starting #rom 1 9anuar" 2011./he $usiness has agreed to !a" this at the

rate o# 210 e&er" three months. ;o)e&er,!a"ments )ere not at the correct times.

Slid 28 12

8/19/2019 Week 6 Main Accruals & Prepayments

12/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.12

Pre!aid e(!enses +ontinued

/he insurance has $een !aid at oddtimes, and so )hen the correct #igure istaken to the !ro#it and loss account, the

$ooks )ill a!!ear as'

Slid 28 1*

8/19/2019 Week 6 Main Accruals & Prepayments

13/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.1*

E(!ense accounts co&ering more than one !eriod

4t is more likel" that there )ill $e o!eningaccruals and !re!a"ments on an account.

/his reall" tests "our kno)ledge o# dou$le

entr" $ookkee!ing and "ou )ill ha&e todistinguish $et)een accruals and!re!a"ments and the $eginning and the

end o# the "ear.

Slide 28 1-

8/19/2019 Week 6 Main Accruals & Prepayments

14/14

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 28.1-

 Acti&it"