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

Barton Co has a year end of 31 December. Electricity paid during the year was $9,400. The accrual at 31 December last year was $1,100 and the accrual needed at 31 December this year is $1,600. What is the electricity expense in the statement of profit or loss for this year?

The electricity expense is $9,900. Cash paid of $9,400 is reduced by the opening accrual of $1,100, which relates to last year, and increased by the closing accrual of $1,600 for unpaid usage this year.

  1. A$8,900
  2. B$9,400
  3. C$9,900Correct
  4. D$12,100

Explanation

Expense = cash paid - opening accrual + closing accrual = 9,400 - 1,100 + 1,600 = $9,900. Option A wrongly reverses the closing accrual and opening accrual adjustments (9,400 + 1,100 - 1,600).

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