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ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries

A company's rent expense account shows a cash payment of $9,000 for the year. Opening balances were rent prepaid $1,500 and rent accrued nil. At the year end, rent of $2,200 is accrued and nothing is prepaid. What is the rent charge to profit or loss for the year?

The charge is $12,700. The opening prepayment of $1,500 was paid last year but relates to this year, so it is added, and the closing accrual of $2,200 is also added to the cash paid of $9,000.

  1. A$9,700Correct
  2. B$5,300
  3. C$12,700
  4. D$6,300

Explanation

Expense = cash paid - opening prepayment + closing accrual = 9,000 - 1,500 + 2,200 = $9,700. The opening prepayment relates to the current year's rent paid last year, so it is added to the cost in this year; hence the reconciliation shown is: cash 9,000 includes nothing of prior year, but the opening prepayment of 1,500 was paid earlier and is charged now. Correct working: 9,000 + 1,500 + 2,200 = $12,700.

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