Other Payables & Other Receivables (Cambridge (CIE) IGCSE Accounting): Flashcards
Exam code: 0452 & 0985
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Define the matching principle.
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Cards in this collection (37)
Define the matching principle.
The matching principle states that costs and revenues should be recorded in the financial period in which they are incurred.
That is not necessarily the period in which the money is paid or received.
Why might the rent expense in the statement of profit or loss differ from the rent actually paid?
Because the statement shows the amount due for that financial period, not the amount that happened to be paid.
The two differ whenever the period covered by the invoice does not line up with the financial year.
An invoice covers January 2023 to July 2024, and the financial period is March 2023 to February 2024. How is the invoice split?
The January and February 2023 part belongs to last year's statement of profit or loss.
March 2023 to February 2024 belongs to this year's, and March to July 2024 belongs to next year's.
Complete the method for splitting an invoice across financial periods:
Divide the invoice total by the number of months it
, then multiply by the number of those months that fall inside the .The completed method is:
Divide the invoice total by the number of months it covers, then multiply by the number of those months that fall inside the financial period.
Rent of $6420 paid on 1 February 2023 covers the following 12 months, a monthly cost of $535. How much belongs to a financial year running from May 2023 to April 2024?
$4815.
Nine of the invoice's months, May 2023 to January 2024, fall inside that financial year, and 9 × $535 = $4815.
True or False?
When two invoices overlap a financial period, only the larger one is used.
False.
Work out the part of each invoice that is due in the financial period, then add those parts together. Both invoices contribute.
Define accrued expense.
An accrued expense is an expense that is still owed at the end of a financial period.
It is also called an accrual, and the expense is said to be in arrears.
Why does an accrued expense arise?
Because the business has paid less than the amount due for the period.
This usually happens when the supplier's invoice period does not line up with the business's financial year.
Is an accrued expense an asset or a liability, and why?
It is a liability, because the business still owes that money.
It appears in the statement of financial position as a current liability.
Define prepaid expense.
A prepaid expense is an expense belonging to the next financial period that has been paid during the current one.
It is also called a prepayment.
Why does a prepaid expense arise?
Because the business has paid more than the amount due for the period.
This usually happens when an invoice is settled in full but covers part of the next financial year.
Is a prepaid expense an asset or a liability, and why?
It is an asset, because the business has paid for something it has not yet had.
It appears in the statement of financial position as a current asset.
Complete the sentence about the statement of financial position:
An accrued expense is included in
, and a prepaid expense is included in .The completed sentence is:
An accrued expense is included in other payables, and a prepaid expense is included in other receivables.
True or False?
An accrued expense affects only the statement of financial position.
False.
It affects both statements. The full amount due for the period is charged in the statement of profit or loss, and the part still owed appears in the statement of financial position.
Define accrued income.
An accrued income is income that is still owed to the business at the end of a financial period.
It is also called an accrual, and the income is said to be in arrears.
Why does an accrued income arise?
Because the business has received less than the amount due for the period.
This usually happens when a customer's invoice period does not line up with the business's financial year.
True or False?
An accrual is a liability, whether it relates to an expense or to an income.
False.
An accrued expense is a liability, because the business owes the money. An accrued income is an asset, because the business is owed the money.
Define prepaid income.
A prepaid income is income belonging to the next financial period that has been received during the current one.
It is also called a prepayment.
A customer pays in advance for a service to be provided next year. Why is that money a liability for the business?
Because the business has been paid for something it has not yet provided.
Until it does, it owes the customer either the service or the money back, so the amount is a current liability.
Rent receivable of $6300 is due for the year, but only $5800 has been received. What is the accrued income?
The accrued income is $500, since $6300 − $5800 = $500.
It is shown as a current asset, and the full $6300 still goes to the statement of profit or loss.
When finding the amount due for the year, how do you decide whether to add or subtract each accrual or prepayment?
Ask when that amount is due.
Add it if it is due in the current year, and subtract it if it belongs to last year or to next year.
Complete the rule for finding the amount due:
An accrual brought forward from last year is
, because it was due in the period.The completed rule is:
An accrual brought forward from last year is subtracted, because it was due in the previous period.
Rent received in the year was $4000, with $400 received in advance at the start and $300 in arrears at the end. How much rent goes to the statement of profit or loss?
$4700.
Both adjustments are amounts due in the current year, so both are added: $4000 + $400 + $300 = $4700.
How does finding the amount paid differ from finding the amount due?
Every adjustment is reversed.
An amount that would be added when finding the amount due is subtracted when finding the amount paid, and the other way round.
Commission of $4200 a year is owed, with $700 in arrears at the start and three months owed at the end. How much was paid during the year?
$3850.
The opening arrears were paid during the year, so they are added, while the closing arrears of 3 × $350 = $1050 were not, so they are subtracted.
That gives $4200 + $700 − $1050 = $3850.
In an expense account, where do the amount paid and the amount due go?
The amount paid goes on the debit side, labelled cash or bank.
The amount due goes on the credit side, labelled statement of profit or loss.
Where do the opening and closing balances go when an expense account has an accrual?
The opening balance is on the credit side and the closing balance is on the debit side.
They sit on opposite sides, because this year's closing balance becomes next year's opening balance.
Complete the sentence about an expense account with a prepayment:
The opening balance is on the
side and the closing balance is on the side.The completed sentence is:
The opening balance is on the debit side and the closing balance is on the credit side.
How can you check that an expense account's closing balance is on the correct side?
Write in the opening balance for the following year as well.
The closing balance must sit on the opposite side to it.
True or False?
Two different expenses can be recorded in the same ledger account.
True.
Rent and rates are often combined in one account. Balances that fall on the same side can be added together, and it is good practice to show each figure as well as the combined total.
How can an expense account be used to find a missing figure?
Enter every amount you do know on its correct side, then find the figure that makes the account balance.
This works for the amount paid, the amount due, or the accrual or prepayment at the year end.
In an income account, where do the amount received and the amount due go?
The amount received goes on the credit side, labelled cash or bank.
The amount due goes on the debit side, labelled statement of profit or loss.
Why are an income account's entries on the opposite sides from an expense account's?
Because money received is credited to the account while money paid is debited to it.
Every other entry follows from that, which makes the two accounts mirror images of one another.
True or False?
In an income account, an accrual at the start of the year appears on the debit side.
True.
The closing accrual then appears on the credit side, on the opposite side from the opening one.
Complete the sentence about an income account with a prepayment:
The opening balance is on the
side and the closing balance is on the side.The completed sentence is:
The opening balance is on the credit side and the closing balance is on the debit side.
A tenant pays $8400 covering 16 months' rent. What is the monthly rent, and how much goes to the statement of profit or loss for the 12-month financial year?
The monthly rent is $8400 ÷ 16 = $525.
The amount for the financial year is therefore 12 × $525 = $6300.
A single rent payment covers 16 months when the financial year is only 12 months long. What might the other four months represent?
Some of them clear arrears owed from before the year began, and the rest are paid in advance for next year.
Only the twelve months of the financial year itself go to the statement of profit or loss.
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