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Post Info TOPIC: Accrual, prepayment or what!


Master Book-keeper

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Posts: 2800
Date:
Accrual, prepayment or what!


Ok sorry guys, a bit stuck on this.

Sole Trader year end 31/3 Invoice dated 25/3 for rent due April - May. Date paid 6/4

I've racked my brains but just don't know how to treat it. I've looked at a reversing journal credit expenses - rent debit accrual but this is the opposite of how I normally do accruals eg bookkeeping debit in the related period with a credit to accruals, so this is throwing me. I can't think of it as a prepayment as it hasn't been paid before the year end, so I'm flummoxed.



__________________

John

Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.



Master Book-keeper

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Posts: 7374
Date:

Hi John
Ignore the date paid. Just consider the date of the invoice and that should make it easier to follow it through.

The invoice you have is dated PRE year end, but the expenses relate totally to AFTER the year end.

Therefore, easiest way to view it is - the invoice is not relevant for the year end.

But obviously given its dated 25 March, you will have included it, so you need to effectively 'lose' the expense.

This is a prepayment of the whole invoice amount.

Normally if the expense is to be counted you debit the rent, credit the supplier/creditors control

Draw up a T account to show the above (and the below idc). I wouldve done but not at home!

So ....to reduce the expense - credit the rent. That bring the expense for that invoice to nil (as it should).

the other half of the transaction is - debit prepayment.

On 1 April do the reverse - credit prepayment (that brings the prepayments account to nil) and debit the rent expense.

Hope that helps.





__________________

Joanne

Fallows Hall Ltd

Winner - Bookkeeper of the Year 2015, 2016 and 2017

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.



Master Book-keeper

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Posts: 2800
Date:

Many thanks Joanne, I really appreciate your help. I was thrown by the date paid, and my head was thinking, it can't be a prepayment because it wasn't paid before the end of the year. Had it been, I would have known it was prepayment.



__________________

John

Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.



Master Book-keeper

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Posts: 7374
Date:

Pleasure John.

You will ace that part of the AAT course when you get to it with your real world experience, its a right old sticking point for about a very high percentage of students apparantly.

__________________

Joanne

Fallows Hall Ltd

Winner - Bookkeeper of the Year 2015, 2016 and 2017

Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.

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