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    Premier Training provides home study courses in accountancy. For the financial year ending March 31, 2017, rent expenses must be accrued and prepaid. Total rent for the year is £21,000. At the start of the year, £2,000 in rent was accrued but not paid. During the year, £26,000 in rent was paid. Since more rent was paid than the total owed, £3,000 is recorded as a prepaid rent expense to be reversed next year.

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    Premier Training provides home study courses in accountancy. For the financial year ending March 31, 2017, rent expenses must be accrued and prepaid. Total rent for the year is £21,000. At the start of the year, £2,000 in rent was accrued but not paid. During the year, £26,000 in rent was paid. Since more rent was paid than the total owed, £3,000 is recorded as a prepaid rent expense to be reversed next year.

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    10 views4 pages

    Accrual and Prepayment of Expenses

    Uploaded by

    acuna.alex
    Premier Training provides home study courses in accountancy. For the financial year ending March 31, 2017, rent expenses must be accrued and prepaid. Total rent for the year is £21,000. At the start of the year, £2,000 in rent was accrued but not paid. During the year, £26,000 in rent was paid. Since more rent was paid than the total owed, £3,000 is recorded as a prepaid rent expense to be reversed next year.

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    of 4

    PREMIER TRAINING

    Home Study Courses

    Accrual and Prepayment


    Expenses

    © PREMIER TRAINING
    Specialists in Accountancy Training
    May 2017
    Telephone: 01469 515444
    Web: www.premiertraining.co.uk
    Accrual and Prepayment of Expenses
    Prem Trains All financial year end is 31st March 17.
    During the year bank payments made for rent totalled £26000.
    At the 1st April 16 the balance in the rent account of £2000 relates to rent accrued at 31st
    March 2016.
    Total rent payable per annum is £21000.

    Debit Rent Account Credit


    Date Details £ Date Details £
    31/03/16 Rent Accrued 2000

    This is the entry that would have been


    made at the year-end in order to account
    for what was still owed.

    Debit Accrual Account Credit


    Date Details £ Date Details £
    31/03/16 Rent Account (accrual) 2000

    In order to prepare the accounts for the financial year end 31st March 2017 we need to
    reverse the accrual of rent that was accounted for at 31st March 2016.

    Debit Rent Account Credit


    Date Details £ Date Details £
    01/04/16 Rent Accrued Reversed 2000

    This is the entry that would be made at


    the beginning of the new financial year
    to reverse the accrual.

    Debit Accrual Account Credit


    Date Details £ Date Details £
    01/04/16 Rent Account (accrual reversed) 2000

    © PREMIER TRAINING
    Specialists in Accountancy Training
    Telephone: 01469 515444
    www.premiertraining.co.uk
    2
    This is the account at the start of the financial year.

    We now need to enter in the payments for


    rent made from the bank of £26000.

    Debit Rent Account Credit


    Date Details £ Date Details £
    31/03/17 Bank 26000 01/04/16 Rent Accrued Reversed 2000
    Income statement/ 21000
    profit or loss

    Total rent for the year to transfer to the


    income statement/profit and loss is £21000.
    Therefore we credit the rent account £21000
    in relation to total annual rent.

    Now we need to balance off the account.

    Debit Rent Account Credit


    Date Details £ Date Details £
    31/03/17 Bank 26000 01/04/16 Rent Accrued Reversed 2000
    31/03/17 Income statement/ 21000
    profit or loss
    31/03/17 Prepayment of rent 3000
    26000 26000

    The balancing figure


    Balance off both sides to equal the shows that rent paid is
    highest side which was £26000. more than the expected
    £21000 therefore the
    balancing figure is known
    as a prepayment.

    Debit Prepayment Account Credit


    Date Details £ Date Details £
    31/03/17 Rent Account (prepayment) 3000

    © PREMIER TRAINING
    Specialists in Accountancy Training
    Telephone: 01469 515444
    www.premiertraining.co.uk
    2
    At the start of the next financial year you would need to reverse the prepayment

    Debit Rent Account Credit


    Date Details £ Date Details £
    01/04/17 Prepayment reversal 3000 31/03/17 Prepayment of rent 3000

    The prepayment has now been reversed and is shown in the rent
    account as an expense in the accounting period it relates to.

    Debit Prepayment Account Credit


    Date Details £ Date Details £
    31/03/17 Rent Account (prepayment) 3000 01/04/17 Rent prepaid reversed 3000

    © PREMIER TRAINING
    Specialists in Accountancy Training
    Telephone: 01469 515444
    www.premiertraining.co.uk
    2

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