Question

Mr. Chai sells various types of toys throughout Malaysia, three of the accounts in the ledger of Mr. Chai indicted the following:

Balance at 1 January 2020:

1. Insurance paid in advance RM562
2. Wages outstanding RM306
3. Rent rreceivable, received in advance RM36

During 2020, Mr. Chai:

1. Paid for insurance RM1019 by bank standing order
2. Paid RM15000 wages in cash
3. Received RM2600 rent by cheque from the Ferdy

At 31 December 2020:

1. Insurance prepaid was RM345
2. Wages accrued amounted to RM419
3. Rent receivable was RM106

Required:

1. Prepare the prepaid insurance, accrued wages and rent receivable accounts for the year ended 31 December 2020
2. Prepare the income statement extract showing clearly the amounts of insurance expense, wages expense and rent revenue for the year ended 31 December 2020
3. Explain the effects on the financial statements of accounting for:

1. The expenses accrued at year end
2. The income received in advance at year end

4. Explain the purpose of accounting for:

1. The expenses accrued at year end
2. The income received in advance at year end

Answer 1

Rent Receivable is Current Asset ,

As it had rent receivable opening balance as income received in advance the balance is in credit side of rent receivable account(Income received in advance- Current liability)

General Norm: All Liabilities should have credit opening balances and All Assets will have debit opening balances

But in this case Only because rent was received in advance the usual debit side balance turned as opening credit balance as receiving income in advance is current liability .Hence the credit opening balance