I'm going through old AAT learning within the AAT portal, I come across this -
Year end 31 May 20XX
Company has three invoices, March April and May - all unpaid. Total £186,000
Now the answer is to accrue May.
But, if you've already entered the invoices you've got £186,000 sitting in van rentals. So the only way I can see is that you'd make a prepayment of £62000.
Bringing the rentals down to £124,000 for the period.
Hi Seb
Not enough info here. You do not say what the actual period is that is covered by these invoices.
Always best to post the full question. so perhaps you can attach a screen shot (although please do not add it in sideways as Ive seen some do before as its annoying when viewing on an ipad and it spins road)
I am however suspecting from the 'answer is to accrue May' that each invoice covers the van rental for the month before. So you would have van rental for May that you havent yet received an invoice for and will not get until after the year, ie in June.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hey, I'm not sure it is because of how the question is worded -
However, word for word:
The company has a year end of 31 March 20X0.
The company has received invoices totalling £186,000 for the delivery van rentals for the three months ending 31 May 20X0.
None of the invoices have been paid by the company's year end on 31 March 20X0.
How should this be accounted for?
You see what is throwing me is that the company has received three invoices, so if you'd entered those in Sage or other, you'd key them to Van Rentals, so you'd have before adjustments a Dr balance of £186,000 in the rentals nominal.
The answer given is "The amount of the accrual is £62,000"
I get the answer, it is what is happening with the invoices in the system?
I suppose if there were no invoices in the system the straight accrual is as simple as the answer -
Ah right. So in your first post you said the year end was May whereas in the typed out second post its March.
So taking a year end of March...
If you don't have the invoice but you know that the rentals cost £186k for three months then (for the purposes of studying/exams) you assume the cost for each month is equal. So each month costs £62k. So you would need to accrue for one month, ie March £62k.
In this scenario you have the invoice, received after the year end, but no doubt you will be still working on the year end, as is often the way. So you key the invoice as usual, with a date on the invoice ie May. So that costs falls into year two. But remember part of that cost actually relates to year one. So you key an accrual. Work it about the same way as above. £186k is for three months (March, April and May) so just one month is year one, so accrue £62k.
The accrual increases year one expenses by the amount that should be in that year.
But then what you need to do in year two, is reverse that accrual, otherwise you have two much in your expense account (plus an accrual that shouldn't be in the balance sheet/statement of financial position). Ther reversal effectively reduces the year two expense down by £62k so year two expense = £124k (re April and May).
Draw up your T accounts and you will see.
Hth
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Its a badly worded question - Ive taken it to be one invoice for the three month. Obviously if you get an invoice for each of the months that would be a different issue. Or one dated March covering up to May. Hope we havent confused the hell out of Seb!!!!!!
Accruals and prepayments are the least understood aspect of the Accounts prep module at AAT level 3 so Ive heard!!!!!!
Still would much prefer to see a screen shot of the actual question.
oops typo edited
-- Edited by Cheshire on Thursday 16th of February 2017 06:31:33 PM
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi Seb Do you have the actual link for this - might see if I can login and get to it. Although I may not be able to view the library due to my membership status.
The question, to me is very badly worded in that its states invoiceS as if there are three - so one would end March - goes in the year end, regardless of when its paid.
But there are times when you wouldn't get that invoice in a timely fashion so you would need to accrue for it. One month accrual =total of invoices/3 is £62k
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Can you post the next two pages of the pictures and any answer if that is on a further page.
Wondering if this is giving you duff info! Its been known in the textbooks (often) and Ive seen one or two howlers on the AAT site before now. Unless Ive lost the plot (OK I lost the plot years ago, but keep quiet about that one!)
Out of interest - what AQA are you studying? 2013 or 2016?
-- Edited by Cheshire on Monday 20th of February 2017 08:37:23 PM
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Omg I clearly had lost the plot with my post at 19.37 (edit on its way!!) So sorry. Yes accrual is for one month only ie March.
It's still a badly worded question to my mind!!! Cos if you had an invoice for March you would key it dated March so no need for an accrual, unless of course you wanted to do the year end within a couple of weeks and then you would just accrued the March one (real life it ain't!!)
Does that make sense? Or shall I start again when I've eaten and woken the brain up again.
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
