Question 1

An expense prepayment is:

Accepted Answer

An expense prepayment refers to expenses that have been paid in advance of the period in which they will benefit. This means the payment is made before the expense is actually incurred.

Question 2

Another name for income received in advance is:

Accepted Answer

Deferred income refers to money received by a company for goods or services which have not yet been delivered or provided. It is recognized as a liability on the balance sheet until the goods or services are delivered, at which point it is recognized as revenue.

Question 3

A debit balance on the rates account after the yearly transfer to the income statement indicates:

Accepted Answer

A debit balance on the rates account after the yearly transfer to the income statement indicates that payments have been made in advance for future periods, thus it is an asset (prepayment) for the company.

Question 4

Tom Limited has a year end - 30/11/X2. The business pays for its Rent by standing order of £120 per month. The cost can vary per month depending on the sales made by Tom Limited. On 01/12/X1, the statement from the landlord showed that Tom Limited had overpaid by £40. The business received rent bills for the four quarters commencing on 01/12/X1 and ending on 30/11/X2 for £260, £280, £420 and £400.
Identify the correct entry that should appear in the income statement for Tom Limited for the year ended 30/11/X2.

Accepted Answer

The total rent bills for the year are £260 + £280 + £420 + £400 = £1,360. The overpayment of £40 from the previous year does not affect the rent expense for the current year.

Question 5

An entity records all transactions relating to the expense for rent in 20X1. On 1 January 20X1 there was an accrual of £900 in respect of rent. On 31 December 20X1 there was a rent accrual of £1,100. During the year, £4,800 was paid in respect of rent.
The expense for rent for the year appearing the income statement account was:-

Accepted Answer

The expense for rent for the year is calculated by adding the rent paid during the year (£4,800) to the increase in the rent accrual from the beginning to the end of the year (£1,100 - £900 = £200). Therefore, the total rent expense for the year is £4,800 + £200 = £5,000.

Question 6

A firm records all transactions relating to the expense rates in a 20X1.
On 1 January 20X1 there was a prepayment of £600 in respect of rates. On 31 December 20X1 there was rates prepaid of £700. During the year £3,100 was paid in respect of rates.
The total expense for rates for the year appearing the income statement account was:-

Accepted Answer

The total expense for the year is calculated as: Opening prepayment (£600) + Payments made during the year (£3,100) - Closing prepayment (£700) = £3,000.

Question 7

During its first financial year, ended 31 December 20X2, an entity paid £3,000 in respect of insurance premiums. All premiums were paid in advance and, except for the following, related to policies with renewal dates coinciding with the firm's accounting year end date.
Policy A Policy B
Annual premium £240 £1,200
Renewal date 30 June 20X3 30 April 20X3
Premium paid 1 July 20X2 1 May 20X2
The firm's insurance expense for 20X2 was:

Accepted Answer

For Policy A (£240 annual premium), 6 months (July to December) relate to 20X2, so £120 is expensed in 20X2. For Policy B (£1,200 annual premium), 8 months (May to December) relate to 20X2, so £800 is expensed in 20X2. The remaining £2,000 of premiums relate to policies with renewal dates coinciding with the year-end, so they are fully expensed in 20X2. Total insurance expense for 20X2 is £120 (Policy A) + £800 (Policy B) + £2,000 (other policies) = £2,920. However, the correct calculation should be considering the total paid (£3,000) minus the prepayments for the next year (£240 for Policy A for 6 months not in 20X2 and £400 for Policy B for 4 months not in 20X2), which equals £3,000 - (£120 + £400) = £2,480.

Question 8

Alex owns a business and pays her business telephone rental quarterly in advance. £25 is paid for on 01/ 11/X1, 01/02/X2, 01/05/X2, 01/08/X2 and 28/10/X2. What is the charge that should appear in the income statement account in respect of telephone rental for the year ended 31/10/X2?

Accepted Answer

The charge for the year ended 31/10/X2 should include payments for 01/11/X1, 01/02/X2, 01/05/X2, and 01/08/X2, totaling £100. The payment on 28/10/X2 is for the next quarter, so it's a prepayment of £25.

Question 9

During the year to 31 October 20X1, car fuel bills of £8,540 were paid. A delivery worth £130 had yet to be invoiced. Car fuel in inventory at 1 November 2003 was £1,250 and there were invoices awaited for £170. At 31 October 20X1, the inventory of car fuel was valued at £980. The car fuel to be charged to the income statement account for the year to 31 October 20X1 is:

Accepted Answer

To calculate the car fuel to be charged to the income statement, we start with the total paid (£8,540), add the delivery not yet invoiced (£130), subtract the inventory at the start of the period (£1,250), and add the inventory at the end of the period (£980). This gives us £8,540 + £130 - £1,250 + £980 = £8,400. However, the correct calculation should also consider the invoices awaited at the start (£170), which were not initially included in the calculation provided. The correct calculation is £8,540 + £130 - (£1,250 - £170) + £980 = £8,770.

Question 10

A company's year end is 30th November 20X2. The company pays for its electricity by standing order at £1,200 per month. On 1st December 20X1, the statement from the electricity supplier showed that the company had overpaid by £400. The company received four electricity bills for the quarters commencing 1st December 20X1 and ending on 30 November 20X2 for £2,600, £2,800, £4,200 and £4,000. Which of the following is the correct electricity charge for the company for the year ended 30th November 20X2.

Accepted Answer

The total of the four quarterly bills is £13,600 (£2,600 + £2,800 + £4,200 + £4,000). The overpayment of £400 from the previous year does not affect the current year's charge.

Question 11

Company's year end is 30th November 20X2. The company pays for its electricity by standing order at £1,200 per month. On 1st December 20X1, the statement from the electricity supplier showed that the company had overpaid by £400. The company received four electricity bills for the quarters commencing 1st December 20X1 and ending on 30 November 20X2 for £2,600, £2,800, £4,200 and £4,000. Which of the following is the correct balance owing on the electricity supplier's account as at 30th November 20X2?

Accepted Answer

The answer of Company's year end is 30th November 20X2....

Question 12

The telephone account for the year ended 30 June 20X2 was as follows: Opening balance for telephone accrued at 1 July 20X2 £6,000 Payments made during the year:
1 August 20X1 for the period to 31 July 20X1 £12,000
1 November 20X1 for the period to 31 October 20X1 £14,400
1 February 20X2 for the period to 31 January 20X2 £18,000
30 June for the period to 30 April 20X2 £16,800
Which of the following is the appropriate entry for telephone in the statement of financial position at 30 June 20X2.

Accepted Answer

The answer of The telephone account for the year ended...

Question 13

The year end is 30/09/X0
Paid for insurance on 15/09/X0 for the period from 01/09/X0 to 31/08/X1 of £2,400.
What is the closing adjustment in the insurance account to reflect this information at the year end?

Accepted Answer

The answer of The year end is 30/09/X0
Paid for insurance...

Question 14

The year end is 30/09/X0
Paid for rates on 01/08/X0 for the period from 01/08/X0 to 31/12/X0 of £600. What is the closing adjustment to reflect this information at the year end?

Accepted Answer

The payment covers a period of 5 months (August to December), but at the year-end (30/09/X0), only 2 months (August and September) have passed. This means 3 months (October to December) are prepaid, hence a prepayment of 3/5 of £600 is correct.

Question 15

The year end is 30 April 20X1.
Paid a £120 electricity bill on 28th February for the period 01/01/X1 to 31/03/X1.
Paid a £150 electricity bill on 28th July for the period 01/04/X1 to 30/06/X1.
What is the overall charge which should affect the income statement 'Heat and light' within the year 30 April 20X1 from the above two transactions?

Accepted Answer

The answer of The year end is 30 April 20X1.
Paid...

Question 16

The year end is 30 April 20X0
Paid a phone bill on 30/07/X0 amounting to £1,200 for the period 15/04/X0 to 15/07/X0.
What is the overall charge which should affect the income statement account 'Telephone' within the year 30 April 20X0 resulting from this information?

Accepted Answer

The charge for the period from 15/04/X0 to 30/04/X0 (15 days) should be included in the year ending 30 April 20X0. The total bill covers 3 months (15/04/X0 to 15/07/X0), so the daily rate is £1,200 / 92 days = £13.04. For 15 days, the charge is 15 * £13.04 = £195.60, rounded to £200.

Question 17

At the start of the year there was £300 worth of oil in the oil tank and an outstanding invoice for £180. During the year payments for oil of £2,900 were made. At the year end there was £280 worth of oil in the oil tank and an outstanding invoice for £100. The oil charge for the year should be:

Accepted Answer

The oil charge for the year is calculated as: Opening stock (£300) + Purchases (£2,900) - Closing stock (£280) = £2,920. Adjust for the change in outstanding invoices: Opening invoice (£180) - Closing invoice (£100) = £80 decrease. Therefore, £2,920 - £80 = £2,720.

Question 18

An entity's year end is 31/12/X2. The statement received from the telephone company in the previous year indicated that at 31/12/X1 £280 had been overpaid in the previous year. During the year to 31/12/X2 the following transactions took place
Invoice received 15/01/X2: Telephone for the period 01/10/X1 to 31/12/X1: £1,200
Invoice received 15/04/X2: Telephone for the period 01/01/X2 to 31/03/X2: £1,600
Invoice received 15/07/X2: Telephone for the period 01/04/X2 to 30/06/X2: £2,000
Invoice received 15/10/X2: Telephone for the period 01/07/X2 to 30/09/X2: £2,100
Invoice received 15/01/X2: Telephone for the period 01/10/X2 to 31/12/X2: £1,800
The company makes a direct debit payment to the telephone company of £700 per month (on the 25th of each month).
The charge in the income statement for the year will be:

Accepted Answer

The total charge for the year includes all invoices received during the year, which sum up to £8,700 (£1,200 + £1,600 + £2,000 + £2,100 + £1,800). However, there was an overpayment of £280 from the previous year, which should be deducted from this year's total expense. Therefore, the charge in the income statement for the year will be £8,700 - £280 = £8,420. However, since this specific answer is not available among the choices, and considering the possibility of a calculation or typographical error in the question or answer choices, the closest correct option provided is £8,680 (A), assuming there might have been an oversight in the calculation or presentation of options.

Question 19

An entity's year end is 31/12/X2. The statement received from the telephone company in the previous year indicated that at 31/12/X1 £280 had been overpaid in the previous year. During the year to 31/12/X2 the following transactions took place
Invoice received 15/01/X2:Telephone for the period 01/10/X1 to 31/12/X1: £1,200
Invoice received 15/04/X2: Telephone for the period 01/01/X2 to 31/03/X2: £1,600.
Invoice received 15/07/X2: Telephone for the period 01/04/X2 to 30/06/X2: £2,000
Invoice received 15/10/X2: Telephone for the period 01/07/X2 to 30/09/X2: £2,100 .
Invoice received 15/01/X2: Telephone for the period 01/10/X2 to 31/12/X2: £1,800
The company makes a direct debit payment to the telephone company of £700 per month (on the 25th of each month).
The amount shown in the statement of financial position at 31/12/X2 will be:

Accepted Answer

The total payments made during the year are £8,400 (12 months x £700). The total invoices for the year amount to £8,700. The opening prepayment was £280. Therefore, the closing prepayment is £8,400 + £280 - £8,700 = £1,180.

Question 20

At the start of the year an agent for a product owed the company £800 commission for sales targets met by the company in the previous year. This year the company made the targets again. The agent for the product paid £12,000 over the course of the year, but still owes the company £500 at the year end. What amount will appear in the income statement for the year?

Accepted Answer

The agent paid £12,000 over the course of the year, but still owes the company £500 at the year end. So the agent paid £12,000 - £500 = £11,500 in commission for the year. However, the agent also owed the company £800 commission for sales targets met in the previous year. So the total amount of commission paid by the agent for the year is £11,500 + £800 = £12,300.

Quiz 17: Accruals and Prepayments

An expense prepayment is:

Another name for income received in advance is:

A debit balance on the rates account after the yearly transfer to the income statement indicates:

Alex owns a business and pays her business telephone rental quarterly in advance. £25 is paid for on 01/ 11/X1, 01/02/X2, 01/05/X2, 01/08/X2 and 28/10/X2. What is the charge that should appear in the income statement account in respect of telephone rental for the year ended 31/10/X2?

The year end is 30/09/X0 Paid for insurance on 15/09/X0 for the period from 01/09/X0 to 31/08/X1 of £2,400. What is the closing adjustment in the insurance account to reflect this information at the year end?

The year end is 30/09/X0 Paid for rates on 01/08/X0 for the period from 01/08/X0 to 31/12/X0 of £600. What is the closing adjustment to reflect this information at the year end?

The year end is 30 April 20X0 Paid a phone bill on 30/07/X0 amounting to £1,200 for the period 15/04/X0 to 15/07/X0. What is the overall charge which should affect the income statement account 'Telephone' within the year 30 April 20X0 resulting from this information?