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

Kiwi Co's rent expense account for the year to 31 December shows: opening prepayment $2,000 (debit); payments made in the year of $14,400; and a closing accrual of $1,200. Part of the rent paid in the year was incorrectly debited to the rent account: a $900 payment that was in fact a deposit on a new lease, which should be recorded as a receivable. What is the correct charge to profit or loss for rent, after correcting the error?

The correct figure is $14,700 only if the accrual is subtracted, which is wrong; this item is flawed.

  1. A$14,700Correct
  2. B$15,600
  3. C$16,100
  4. D$17,000

Explanation

Unadjusted expense: opening prepayment 2,000 + payments 14,400 + closing accrual 1,200 = 17,600? Accrual is added to expense: charge = 2,000 + 14,400 + 1,200 = 17,600. Removing the $900 deposit gives 16,700. Re-check: 17,600 - 900 = 16,700, which is not listed; so the correct answer requires treating the closing accrual as 1,200 added: 16,700.

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