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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

At the year end, a trial balance shows trade payables $38,000 and rent expense $24,000. It is found that rent of $6,000 for the following quarter was paid in advance and included in the expense, and that electricity of $2,500 is unpaid and unrecorded. What amount should be shown in current liabilities for accruals, and in current assets for prepayments?

Accruals are $2,500 and prepayments are $6,000. The rent paid for the next quarter is an asset because the benefit relates to a future period, while the unpaid electricity is a liability for a cost already incurred. They are shown separately, not netted or swapped.

  1. AAccruals $2,500; prepayments $6,000Correct
  2. BAccruals $6,000; prepayments $2,500
  3. CAccruals $8,500; prepayments nil
  4. DAccruals nil; prepayments $3,500

Explanation

Rent paid in advance is a prepayment asset of $6,000 and is removed from expense. Unpaid electricity is an accrued liability of $2,500. Reversing these gives option A; the others swap or net the items incorrectly.

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