In: Accounting
Three of the accounts in the ledger of John Dier indicated the
following balances at 1
January 2013:
Insurance paid in advance K562
Wages outstanding K306
Rent receivable, received in advance K36
During 2013 John Dier:
i. ii. iii. |
Paid for insurance K1,019 by bank standing order; Paid K15,000 wages in cash Received K2,600 rent by cheque from the tenant |
At 31 December, insurance prepaid was K345.On the same day
receivable in arrears was K105 and
wages accrued amounted to K419.
a. Prepare the insurance, wages and rent receivable accounts for
the year ended 31 December
2013, showing the year end transfers and the balances brought
down.
b. Prepare the income statement extract showing clearly the amounts
transferred from each of
the above accounts for the year ending 31 December 2013.
c. Explain the effects on the financial statements of accounting
for (1) expenses accrued and (2)
income received in advance at year end.
d. What are the purposes of accounting for (1) expenses accrued and
(2) income received in
advance at year end.
a) insurance account
particulars | amount | particulars | amount |
to balance b/d | k562 | ||
to bank | k1019 | by balance c/d | k1581 |
b)wages account
to balance b/d | k306 | ||
to cash | k15000 | by balance c/d | k14694 |
c)
to balance b/d | k36 | by bank | k2600 |
to balance c/d | k2564 | ||
2. income ststement
to insurance | k1581 | ||
to wages | k14694 | ||
to rent | k2564 | ||
3)increase in accrued expenses increases the liability side of the balance sheet.
increase in prepaid expenses increase the asset side of the balance sheet
4)puposes of accounting for prepaid expenses and accrued expenses at year end is that the stakeholders get a clear idea of the company's financial position.