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ACCA Applied Knowledge · Financial Accounting · Accrued expenses (accruals), prepaid expenses (prepayments), accrued income and deferred income

A company's trial balance shows a balance of $4,000 on the telephone expense account before year-end adjustments. It then discovers that $600 paid relates to the next year and that a bill of $450 for the current year is unpaid. What is the final telephone expense for the year?

The telephone expense is $3,850. The $600 paid for next year is deducted as a prepayment, and the unpaid $450 for the current year is added as an accrual, giving 4,000 - 600 + 450.

  1. A$3,850Correct
  2. B$4,150
  3. C$4,000
  4. D$5,050

Explanation

Start with $4,000. Remove the $600 prepayment: 3,400. Add the $450 accrual: 3,850. The incorrect option $4,150 results from adding the prepayment and deducting the accrual.

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