Question

In: Accounting

Three of the accounts in the ledger of John Dier indicated the following balances at 1...

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.

Solutions

Expert Solution

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.


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