Prepayments and Accruals

What is difference between accrued expenses and prepaid expenses? (tick 2 boxes)

• accrued expenses = not yet paid for the current year

  prepaid expenses = paid in advance for the next accounting period

• accrued expenses = paid for the current year

  prepaid expenses = not paid for next accounting year

• accrued expenses = posted as current asset

  prepaid expenses = posted as current liability

• accrued expenses = posted as current liability

  prepaid expenses = posted as current asset

What is the difference between income receivable and income received in advance? (tick 2 boxes)

• income receivable = posted as current asset

  income received in advance = posted as current liability

• income receivable = not yet received for current year

  income received in advance = received in advance for next year

• income receivable = received for current year

  income received in advance = not received in advance for next year

• income receivable = posted as current liability

  income received in advance = posted as current asset

What are 2 accounting concepts applied to prepayments and accruals?

• prudence and accrual concepts

• prudence and matching concepts

• accounting entity and going concern concepts

• matching and accrual concepts

Additional information at year end:

accrued insurance $300 prepaid rent $700

Identify the correct entries in Income statement .

• add $300 accrued insurance minus $700 prepaid rent

• add $300 accrued insurance add $700 prepaid rent

• minus $300 accrued insurance minus $700 prepaid rent

• minus $300 accrued insurance add $700 prepaid rent

Additional information at year end:

interest income receivable $500

Rent income received in advance $200

• add Rent income received in advance $200

  less interest income receivable $500

• add Rent income received in advance $200

  add interest income receivable $500

• less Rent income received in advance $200

  add interest income receivable $500

• less Rent income received in advance $200

  less interest income receivable $500

How do we close the Insurance(expenses) account at year end?

• close to Trading portion

• close to Profit and loss portion

• close to Income statement portion

• close to Balance sheet portion

Jan 1 Prepaid rent $400

Calculate the amount to be closed to Profit and loss.

• Profit and loss = - 400 + 600 + 200 = $400

• Profit and loss = 400 + 600 + 200 = $1200

• Profit and loss = 400 - 600 + 200 = 0

• Profit and loss = - 400 - 600 + 200 = - $800

Adjustments at beginning of year Jan 1 2019:

Prepaid rent $600 Accrued insurance $500

Identify the correct adjusting entries in :

Rent account Insurance account

• Jan 1 Rent account add prepaid $600

  Jan 1 Insurance account add accrued insurance $500

• Jan 1 Rent account add prepaid $600

  Jan 1 Insurance account less accrued insurance $500

• Jan 1 Rent account less prepaid $600

  Jan 1 Insurance account add accrued insurance $500

• Jan 1 Rent account less prepaid $600

  Jan 1 Insurance account less accrued insurance $500

Adjustments at beginning of year Jan 1 2019:

interest received in advance $700

commission income receivables $300

Identify the correct adjusting entries for:

Interest received account

Commission income account

• Jan 1 Interest recd account add recd in advance 700

  Jan 1 Comm income account add comm receivable $300

• Jan 1 Interest recd account less recd in advance 700

  Jan 1 Comm income account less comm receivable $300

• Jan 1 Interest recd account add recd in advance 700

  Jan 1 Comm income account less comm receivable $300

• Jan 1 Interest recd account less recd in advance 700

  Jan 1 Comm income account add comm receivable $300

What is the difference between prepaid insurance at beginning of year and prepaid insurance at end of year?

Jan 1 Prepaid insurance $400

Dec 1 Prepaid insurance $650

Identify the correct entry in the Insurance account.

• Jan 1 add prepaid insurance $400

  Dec 31 less prepaid insurance $650

• Jan 1 add prepaid insurance $400

  Dec 31 add prepaid insurance $650

• Jan 1 less prepaid insurance $400

  Dec 31 add prepaid insurance $650

• Jan 1 less prepaid insurance $400

  Dec 31 less prepaid insurance $650