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

Dunmore Co rents out a warehouse. Rent received in the year was $48,000. At the start of the year, rent received in advance was $4,000 and rent in arrears (accrued income) was $2,500. At the end of the year, rent received in advance was $6,000 and no rent was in arrears. What is the rental income in the statement of profit or loss?

Rental income is $43,500. Cash of $48,000 is adjusted by adding the opening advance receipt of $4,000 now earned, deducting the $2,500 opening arrears received that relates to last year, and deducting the $6,000 received in advance for next year.

  1. A$40,500
  2. B$43,500Correct
  3. C$44,500
  4. D$52,500

Explanation

Start with cash 48,000. Add opening deferred income released (+4,000) and subtract opening accrued income already received in cash (-2,500) as it relates to the prior year; subtract closing deferred income (-6,000). 48,000 + 4,000 - 2,500 - 6,000 = 43,500. Check: income earned for the year = cash relating to this year; the opening arrears of 2,500 was received this year but earned last year.

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