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DBFA 1513 Actg Methods 1

Final Accounts (Accruals & Prepayment)

Accruals Prepayments

Refer to amounts which are NOT yet Refers to amount which are being
settled/owed, It is either NOT yet received paid/received in ADVANCE
or being paid for.

Income Accrued Income Prepaid

This represent the amount This represent the amount


owed by the customer to received in advance by the
the company. company from its
customer
Actg. Treatment:
Actg. Treatment:
DR Income Accrued
CR Income Statement DR Income Statement
CR Income Prepaid

Expenses Accrued Expenses Prepaid

This represent the amount This represent the amount


owed by the company to paid in advance by the
their supplier. company to their supplier.

Actg. Treatment: Actg. Treatment:


DR Expenses Prepaid
DR Income Statement CR Income Statement
CR Expenses Accrued

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DBFA 1513 Actg Methods 1
Final Accounts (Accruals & Prepayment)

Lecture Example 1:
Mr John prepares its account each year to 31 December. Rent is paid for the business premises
6 month in advance on 1 April and 1 October each year. Recent rent payments and dates were
as follow:

1 Oct. 2004 RM4,000


1 Apr. 2005 RM5,000
1 Oct. 2005 RM5,000
Show the records for the year 2005.

Lecture Example 2:
Thomas operates from an outlet in Prangin Mall. On 1 January 2004, he rent out part of the shop
to a friend at an agreed rental of RM200 payable 3 months in arrears by four equal installments of

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DBFA 1513 Actg Methods 1
Final Accounts (Accruals & Prepayment)

RM50. The first three rentals were received promptly on 30 March, 30 June and 30 Sept. The last
quarter rental was received on 3 January 2005.

Show the records for the year 2004.

Lecture Example 3:
The warehouse occupied by Alan is partially rented out to Samuel. For this Samuel pays annual
rent of RM1,000 for the year ended 31 December 2005. Samuel sent Alan 3 cheque as follow:

30 March 2005 RM200


31 July 2005 RM200
30 Sept 2005 RM200

Show the records for the above.

Lecture Example 4:
You are required to:
a. show how the items appear in the income statement
b. show how it will appear in the balance sheet

Trial Balance (Extracts)

DR CR
Salaries 3,500
Rates 1,350
Commission 825
Interest 120
Rent 3,500
Rent received 250
Insurance 200

Balance day adjustments: RM


i. salaries owing 550
ii. Accrued interest 35
iii. Rent receivable 110
iv. Insurance prepaid 20
v. Rent prepaid 30
vi. Rates accrued 110

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DBFA 1513 Actg Methods 1
Final Accounts

☺ It is a summary of the financial results of an enterprise which identify the profits


of the company for an accounting period.

Format:
Cosmos
Income Statement for the year ended 31 December 2005

Sales X
(-) sales returns (X)
-----
X
Less: Cost of Sales
Opening Inventories X
Purchases X
(-) Purchase returns (X)
Carriage Inwards X
-----
X
(-) Closing Inventories (X) (X)
----- -----
Gross Profit X
Add: Income
Discount Received X
Rent received X X
-----
Less: Expenses
Rent X
Discount allowed X
Wages & Salaries X
Depreciation X
Carriage outwards X (X)
----- -----
Net Profit X
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DBFA 1513 Actg Methods 1
Final Accounts (Accruals & Prepayment)

===

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DBFA 1513 Actg Methods 1
Final Accounts
Balance Sheet
☺ Is a summary of the financial position of the company indicating its assets and
liabilities at the end of a financial year.

Format:
Cosmos
Balance Sheet as at 31 December 2005

Non – Current Assets Costs Accumulated Net Book


Depreciation Value

Buildings XX X XX
Motor Vehicle XX X XX
Furniture & Fittings XX X XX
-------- ---------- ----------
XX X XX
===== ====== ======
Current Assets
Inventories X
Receivables X
(-) Allowance for doubtful debts (X) X
------
Bank X
Cash X
-------
X
Current Liabilities
Payables X
Accruals X X
------- -------
Net Current Assets X
---------
XX
=====
Financed By;
Capital X
(+) Net Profit X
--------
XX
(-) Drawings (X)
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DBFA 1513 Actg Methods 1
Final Accounts (Accruals & Prepayment)

--------
XX
=====

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DBFA 1513 Actg Methods 1
Final Accounts
Lecture Example 1:

On 31 December 2005, the book of Mickey shows the following balances;


RM
Inventories on 1 January 2005 980
Purchases 10,500
Sales 19,000
Return Inwards 300
Return outwards 400
Carriage Inwards 150
Duty on purchases 200
Closing inventories 100

Required;
Using an income statement, derive the gross profit amount.

Lecture Example 2:

Based on the information below, prepare an income statement and balance sheet for the
year ended 30 June 2005.

Trial Balance as at 30 June 2005


RM RM
Capital 12,000
Cash in Hand 1,300
Cash at bank 2,800
Motor Vehicle 8,000
Receivables 2,200
Payables 22,800
Sales 16,145
Purchases 16,900
Return inwards 910
Return outwards 325
Drawings 1,450
Freight on purchases 60
Inventories, 1 January 2005 4,600
Commission 8,000
Interest received 350
Fixed deposit 5,400
--------- ---------
52,620 52,620
===== =====
Additional Information;

a. The closing inventories were valued at RM1,200.

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DBFA 1513 Actg Methods 1
Final Accounts (Accruals & Prepayment)

b. Depreciation of motor vehicle at 10% per annum.


c. Interest accrued amounted to RM50.

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