Deck 17: Accruals and Prepayments

Question 1

An expense prepayment is:

A) Expenses paid in advance
B) Income received in advance
C) Expenses paid in arrears
D) Income received in arrears

Answer 1

Expenses paid in advance

Question 2

Another name for income received in advance is:

A) Income receivable
B) Income due
C) Deferred income
D) Income received in arrears

Answer 2

Deferred income

Question 3

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

A) An asset and an accrual
B) An asset and a prepayment
C) A liability and an accrual
D) A liability and a prepayment

Answer 3

An asset and a prepayment

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.

A) £1,360
B) £1,400
C) £1,440
D) £1,480

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:-

A) £4,600
B) £4,800
C) £5,000
D) £5,900

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:-

A) £3,000
B) £3,100
C) £3,200
D) £3,700

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:

A) £2,280
B) £2,480
C) £2,580
D) £3,000

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?

A) £125 with a prepayment of £25 in the balance sheet
B) £100 with a prepayment of £25 in the balance sheet
C) £100 with an accrual of £25 in the balance sheet
D) £125 with an accrual of £25 in the balance sheet

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:

A) £8,510
B) £9,110
C) £8,850
D) £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.

A) £13,600
B) £14,000
C) £14,400
D) £14,800

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?

A) Overpayment of £400
B) Overpayment of £800
C) Over payment of £1,200
D) Underpayment of £400

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.

A) £Nil
B) Accrued £5,600
C) Prepaid £5,600
D) Accrued £11,200

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?

A) A prepayment of 0.5/12 of £2,400.
B) A prepayment of 11.5/12 of £2,400.
C) A prepayment of 1/12 of £2,400.
D) A prepayment of 11/12 of £2,400.

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?

A) An accrual of 2/5 of £600.
B) An accrual of 3/5 of £600.
C) A prepayment of 2/5 of £600.
D) A prepayment of 3/5 of £600.

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?

A) A charge of £270.
B) A charge of £220.
C) A charge of £170.
D) A charge of £120.

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?

A) A charge of £200.
B) A charge of £400.
C) A charge of £800.
D) A charge of £1,000.

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:

A) £2,720
B) £2,820
C) £2,880
D) £2,900

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:

A) £8,680
B) £8,400
C) £7,500
D) £7,400

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:

A) £900 prepayment
B) £1,180 prepayment.
C) £1,180 prepayment
D) £1,180 accrual

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?

A) £11,700
B) £12,000
C) £12,300
D) £12,500