QUESTION BANK

CHAPTER 9: ACCRUALS AND PREPAYMENTS

1. A business preparing its financial statements for the year to 31 October pays rent quarterly
in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was
increased from £48,000 to £60,000 from 1 March 20X4.
What figure should appear for rent in the SOPL for the year ended 31/10/20X4 and in the
SOFP as at that date?

SOPL SOFP

A 56,000 10,000
B 52,000 5,000

C 56,000 5,000

D 55,000 10,000

2. A business has received telephone bills as follows:

Date received Amount of bill Date paid

Quarter to 30/11/X0 12/X0 739.20 1/X1

Quarter to 28/02/X1 3/X1 798.00 4/X1

Quarter to 31/5/X1 6/X1 898.80 6/X1

Quarter to 31/8/X1 9/X1 814.80 10/X1

Quarter to 30/11/X1 12/X1 840.00 1/X2

Quarter to 28/2/X2 3/X2 966.00 3/X2

What amount of telephone expenses should be included in the SOPL for the year ended
31/12/X1?
A. 3,407.60
B. 3,351.60
C. 3,250.80
D. 3.463.60
3. A company receives rent form a large number of properties. The total cash received in the
year ended 31/10/20X6 was £481,200.
The following are the amounts of rent in advance and in arrears at 31/10/20X5 and 20X6:
 31/10/20X5 31/10/20X6

Rent received in advance 28,700 31,200

Rent in arrears (all subsequently received) 21,200 18,400

What amount of rental income should be included in the company’s SOPL for the year ended
31/10/20X6
A. 486,500
B. 460,900
C. 501,500
D. 475,900
4. A rent prepayment of £960 was treated as an accrual in a sole trader’s statement of profit
or loss at the year end. As a result the profit was:
A. Understated by £960
B. Understated by £1,920
C. Overstated by £1,920
D. Overstated by £960
5. In the year ended 31 December 20X4, B Ltd received cash of £318,600 from subscribers to
its website. Detail of subscriptions in advance and in arrears at the beginning and end of
20X4 are as follows:

31/12/20X4 31/12/20X3

Subscriptions received in advance 28,400 24,600

Subscriptions owing 18,300 16,900

All subscriptions owing were subsequently received.

What figure for subscriptions income should be included in the statement of profit or loss of B
Ltd for 20X4?
A. £321,000
B. £336,400
C. £300,800
D. £316,200
6. A company receives rent for subletting part of its office block. Rent, receivable quarterly in
advance, is received as follows:
Date of receipt Period covered £
1 October 20X1 3 months to 31 December 20X1 7,500
30 December 20X1 3 months to 31 March 20X2 7,500
 4 April 20X2 3 months to 30 June 20X2 9,000
1 July 20X2 3 months to 30 September 20X2 9,000
1 October 20X2 3 months to 31 December 20X2 9,000
What figures, based on these receipts, should be included in the company's financial
statements for the year ended 30 November 20X2?
Statement of profit or loss Statement of financial position
A £33,500 Debit Accrued income (Debit) £6,000
B £33,500 Credit Deferred income (Credit) £6,000
C £34,000 Credit Deferred income (Credit) £3,000
D £34,000 Credit Accrued income (Debit) £3,000

7. During 20X4, Bibi paid a total of £60,000 for rent, covering the period from 1 October
20X3 to 31 March 20X5.
What figures should be included in the financial statements for the year ended 31 December
20X4?
Statement of profit or loss Statement of financial position
A £40,000 £10,000 Prepayment
B £40,000 £15,000 Prepayment
C £50,000 £10,000 Accrual
D £50,000 £15,000 Accrual

8. A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each
year. The rent was increased from £90,000 per year to £120,000 per year as from 1 October
20X2.
What rent expense and accrual should be included in the company’s financial statements for
the year ended 31 January 20X3?
Rent expense (SPL) Accrual (SFP)
A £100,000 £20,000
B £100,000 £10,000
C £97,500 £10,000
D £97,500 £20,000
9. A company owns a number of properties which are rented to tenants. The following
information is available for the year ended 30 June 20X6
Rent in advance Rent in arrears
£ £
30 June 20X5 134,600 4,800
30 June 20X6 144,400 8,700
Cash received from tenants in the year ended 30 June 20X6 was £834,600
All rent in arrears was subsequently received.
What figure should appear in the company’s statement of profit or loss for rent receivable in
the year ended 30 June 20X6
A £840,500
B £1,100,100
C £569,100
D £828,700

10. A company has sublet part of its offices and in the year ended 30 November 20X3 the
rent receivable was:
Until 30 June 20X3 £8,400 per year
From 1 July 20X3 £12,000 per year
Rent was received quarterly in advance on 1 January, April, July, and October each year.
What amounts should appear in the company's financial statements for the year ended 30
November 20X3?
Statement of profit or loss Statement of financial position
A £9,900 £2,000 in other payables
B £9,900 £1,000 in other payables
C £9,600 £1,000 in other payables
D £9,600 £2,000 in other receivables

11. A bussness compiling its financial statements for the year to 31 July each year pays rent
quarterly in advance on 1 January, 1 April, 1 July and 1 Octorber each year. The annual rent
was increased from £60,000 per year to £72.000 per year as from 1 Octorber 20X3.
What figure should be included as the rent expense in the statement of profit or loss for the
year ended 31 July 20X4?
A £69,000
B £62,000
C £70,000
D £63,000
12. At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the
company paid £38.000 for insurance for the year to 30 September 20X5.
What figures should be included for insurance in the company’s financial statements for the
the year ended 30 June 20X5?
Statement of profit or loss Statement of financial position
A £45,200 Prepayment £0
B £39,300 Prepayment £9,500
C £36,700 Prepayment £9,500
D ££39,300 Prepayment £0

13. A company sublets part of its office accommodation. In the year ended 30 June 20X5
cash received from tenants was £83,700.
Details of rent in arrears and in advance at the beginning and end of the year were:
In arrears In advance
£ £
30 June 20X4 3,800 2,400
30 June 20X5 4,700 3,000
All arrears of rent were subsequently received.
What figure for rental income should be included in the company's statement of profit or loss
for the year ended 30 June 20X5?
A £84,000
B £83,400
C £80,600
D £86,800

14. Details of a company's insurance policy are shown below:

Premium for year ended 31 March 20X6 paid April 20X5 £10,800
Premium for year ending 31 March 20X7 paid April 20X6 £12,000
What figures relating to insurance should be included in the company's financial statements
for the year ended 30 June 20X6?
Statement of profit or loss Statement of financial position
A £11,100 £9,000 prepayment (Debit)
B £11,700 £9,000 prepayment (Debit)
C £11,100 £9,000 accrual (Credit)
D £11,700 £9,000 accrual (Credit)
15. An organisation's year end os 30 September. On 1 January 20X6 the organisation took out
a loan of £100,000 with annual interest of 12%. The interest is payable in equal instalments
on the first day of April, July, Octorber and January in arrears.
How much should be charged to the statement of profit or loss for the year ended 30
September 20X6, and how much should be accured on the statement of financial position?
Statement of profit or loss Statement of financial position
A £12,000 £3,000
B £9,000 £3,000
C £9,000 £0
D £6,000 £3,000

16. A business sublets part of its office accommodation.

The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The
annual rent has been £24,000 for some years, but it was increased to £30,000 from 1 July
20X5.
What amounts for this rent should appear in the company’s financial statements for the year
ended 31 January 20X6.
Statement of profit or loss Statement of financial position
A £27,500 £5,000 accrued income
B £27,000 £2,500 accrued income
C £27,000 £2,500 deferred income
D £27,500 £5,000 deferred income

17. The electricity account for the year ended 30 June 20X1 was as follows:
£
Opening balance for electricity accrued at 1 July 20X0 300
Payments made during the year
1 August 20X0 for three months to 31 July 20X0 600
1 November 20X0 for three months to 31 October 20X0 720
1 February 20X1 for three months to 31 January 20X1 900
30 June 20X1 for three months to 30 April 20X1 840
On 1 August 20X1 a payment of £840 was made for the three months ended 31 July 20X1
What is the charge for electricity that should be included in the statement of profit or loss for
the year ended 30 June 20X1?
A £3,060
B £3,320
C £3,360
D £3,620
18. The year end of Murphy plc is 30 November 20X1. The company pays for its gas by a
standing order of £600 per month. It had an opening accrual of £400 and a closing accrual of
£500.
What is the correct charge for gas to be included in Murphy Plc's statement of profit or loss for
the year ended 30 November 20X1 ?
A £7,700
B £7,100
C £7,200
D £7,300

19. At 31 December 20X8 Blue Anchor Plc has an insurance prepayment of £250. During
20X9 they pay £800 in respect of various insurance contracts. The closing accrual for
insurance is
£90.
What is the charge for insurance that should be included in the statement of profit or loss for
the year ended 31 December 20X9?
A £460
B £800
C £960
D £1,140

20. At 31 March 20X7, accrued rent payable was £300. During the year ended 31 March
20X8, rent paid was £4,000, including an invoice for £1,200 for the quarter ended 30 April
20X8.
What is the statement of profit or loss charge for rent payable for the year ended 31 March
20X8?
A £3,300
B £3,900
C £4,100
D £4,700

21. Constains plc. has an insurance prepayment of £320 at 31 March 20X2. During the year
ended 31 March 20X2 Constains Plc paid two insurance bills, one for £1,300 and one for
£520.
What was the insurance prepayment at 31 March 20X1 if the charge for insurance for the year
was £1,760?
A £200
B £260
C £320
D £380
22. The annual insurance premium for Boost Ltd for the period 1 July 20X6 to 30 June 20X7
is £13,200, which is 10% more than the previous year. Insurance premium are paid on 1 July.
What is the statement of profit or loss charge for insurance for the year ended 31 December
20X6?
A £12,000
B £12,600
C £13,200
D £14,520

23. A gas accrual for £400 at the year end was treated as a prepayment in a business’s
statement of profit or loss:
As a result the profit was
A understated by £400
B overstated by £400
C understated by £800
D overstated by £800

24. At 31 December 20X2 the following matters require inclusion in a company's financial
statements:
1 On 1 January 20X2 the company made a loan of £12,000 to an employeer, repayable
on 30 April 20X3, charging interest at 2% per year. On the due date she repaid the
loan and paid the whole of the interest due on the loan to that date.
2 The company has paid insurance £9,000 in 20X2, covering the year ending 31
August
20X3.
3 In January 20X3 the company received rent from a tenant £4,000 covering the six
month to 31 December 20X2.
For these items. What total figures should be included in the company’s statement of financial
position at 31 December 20X2?
Current asset Current liabilities
A £22,000 £240
B £22,240 £0
C £10,240 £0
D £16,000 £6,000
25. Whilst reviewing the trial balance for a business. It was determined that an accrual for
electricity was required for £300 and that there was a prepayment of insurance of £800.
What four entries are required to adjust the initial trial balance?
A Debit electricity £300
B Debit insurance £800
C Credit electricity £300
D Credit insurance £800
E Debit accruals £300
F Credit accruals £300
G Debit prepayments £800
H Credit prepayments £800

26. A business has an accrual for electricity at 1 January 20X7 of £215 and has paid
electricity bills of £3,420 during the year to 31 December 20X7. At 31 December 20X7 there
is an accrual for electricity of £310
What is the electricity charge to be included in the statement of profit or loss for the year
ended 31 December 20X7?
A £2.895
B £3,325
C £3,515
lD £3,945

27. A business has paid £ 10,400 of insurance premiums during the year ended 31 March
20X7. At 1 April 20X6 there was an insurance prepayment of £800 and at 31 March 20X7
there was a prepayment of £920
What is the insurance charge in the statement of profit or loss for the year ended 31 March
20X7?
A £8,680
B £10,280
C £10,400
D £10,520
28. Wright & Co’s year end is 31 August 20X4. Telephone line rental of of £120 was paid on
31 July for the two months from that date. This amount was included in the accounting
records by debiting the telephone expense account and crediting the cash at bank account.
Which two of the following entrie of £160 should Wright & Co make at the year end in
relation to this expense?
A Debit the telephone charges acc
B Debit the prepayments account
C Debit the accruals account
D Credit the accruals account
E Credit the prepayments account
F Credit the telephone charges account

29. Krim plc paid local property tax of £6,495 on 31 May 20X7, in respect of the three
months ending 31 August 20X7. In the administrative expenses ledger account for the year
ended 30 June 20X7 Krim plc must:
A debit £2,165
B credit £2,165
C debit £4,330
D credit £4,330

30. Jeremiah plc is a newsagent business and is preparing its financial statements for the year
ended 31 August 20X8. There are three outstanding matters that the company has not yet
accounted for.
1 A subscription of £240 for the year ending 31 January 20X9, paid and accounted for
by Jeremiah plc on 1 July 20X8.
2 Advance payments (deposits) of £75 recorded as received from customers in respect
of magazines on order but not yet received at the year end.
3 An unpaid property tax demand for the six months to 30 September 20X8 for £5,400.
Which three of the following balances will appear in Jeremiah plc’s statement of financial
position as at 31 August 20X8?
A Deferred income £75
B Accrued income £75
C Prepayment £100
D Accrual £4,500
E Accrual £900
F Prepayment £140
31. Minoto plc is preparing its financial statements as at 31 December 20X4. Its ledger
account balance for rental income includes £9,870 rent received and included in cash at bank
in 20X4 in respect of 20X3.
Minoto Plc should enter a journal with two entries of £9,870 as:
A a debit entry to the rental income account
B a debit entry to the deferred income (liability) account
C a debit entry to the accrued income (asset) account
D a credit entry to the rental income account
E a credit entry to the deferred income (liability) account
F a credit entry to the accrued income (asset) account

32. As at 30 November 20X4 Whitley plc had accrued distribution costs of £5,019 and
prepaid distribution costs of £2,816. On 1 December 20X4 the bookkeeper processed the
following opening journal: Credit Accruals £5,019, Debit Prepayments £2,816, Debit
Distribution costs
£2,203.
During the year to 30 November 20X5 cash was paid in respect of distribution costs of
£147,049 and was correctly posted to the distribution costs account. At the year end, Whitley
plc's bookkeeper correctly processed closing journals to set up an accrual of £4,423 and a
prepayment of £3,324 in respect of distribution costs.
Which of the following journals should Whitley plc process as at 30 November 20X5 to
correct the three accounts?
A Debit Accruals £ 10,038, Credit Prepayments £5,632, Credit Distribution costs
£4,406
B Debit Accruals £5,019, Credit Prepayments £2,816, Credit Distribution costs £2,203
C Debit Distribution costs £4,406, Debit Prepayments £5,632, Credit Accruals £10,038
D Debit Distribution costs £2,203, Debit Prepayments £2,816, Credit Accruals £5,019

33. Bez plc draws up financial statements to 31 December in each year. It pays internet server
charges for each year ending 30 April in two equal instalments, on 1 May and 1 November in
advance. It also pays telephone rental charges quarterly in arrears at the end of Ferbruary,
April, July and November. The total internet server charge for the year to 30 April 20X6 was
£9,000. Telephone rental charges for the year commencing 1 July 20X5 were £7,440.
What was the prepayment for internet server charges included in Bez plc’s statement of
financial position at 31 December 20X5?
A £1,500
B £3,000
C £2,250
What was the accrual for telephone rental charges included in Bez pls’s statement of financial
position at 31 December 20X5?
 A £1,860
B £1,240
C £620

34. Butters plc is finalising certain figures that will appear in its financial statement as at 30
June 20X5. On 1 March 20X4 the company paid an annual subscription to a trade association
of £21.000 for the 12 months ended 28 Ferbruary 20X5. A 12.5% increase in this
subscription is expected, but has not been finalised at 30 June 20X5.
What will Butters included in its statement of financial position at 30 June 20X5 in respect of
the subscription?
A an accrual of £15,750
B an accrual of £7,875
C a prepayment of £15,750
D prepayment of £7,875

35. Details of a company's insurance policy are shown below:

Premium for year ending 31 March 20X7 paid April 20X6: £10,800
Insurance costs are included within administrative expenses.
What is the double entry to reverse the opening accrual or prepayment in the year ended 30
June 20X7?
A Dr Administrative expenses £8,100 Cr Prepayment £8,100
B Dr Prepayments £8,100 Cr Administrative expenses £8,100
C Dr Administrative expenses £2,700 Cr Accruals £2,700
D Dr Accruals £2,700 Cr Administrative expenses £2,700

36. Alii Ltd owns a number of properties which are rented to tenants. Cash received from
tenants in the year ended 30 June 20X6 was £834,600 which has been included as rental
income in the year.
The following information is available for the year ended 30 June 20X6:
Rent in advance Rent in arrears
£ £
30 June 20X6 144,600 8,700
All rent in arrears was subsequently received.
What is the journal entry to adjust Alii Ltd's rental income for the year ended 30 June 20X6?
A Debit Accrued income £144,600, Credit Deferred income £8,700, Credit Rental
income £135,900
B Debit Accrued income £8,700, Debit Rental income £135,900, Credit Deferred
income £144,600
 C Debit Deferred income £144,600, Credit Accrued income £8,700, Credit Rental
income £135,900
D Debit Deferred income £8,700, Debit Rental income £135,900, Credit Accrued
income £144,600

37. A company has occupied rented premises for some years, paying an annual rent of
£120,000. From 1 April 20X6 the rent was increased to £144,000 per year. Rent is paid
quarterly in advance on 1 January, 1 April, 1 July and 1 October each year.
What is the journal entry to transfer the balance on the rent expense account to the profit and
loss ledger when preparing the financial statements for the year ended 30 November 20X6?
A Debit Profit and loss ledger account £136,000, Credit Rent expense £136,000
B Debit Rent expense £ 136,000, Credit Profit and loss ledger account £136,000
C Debit Rent expense £ 138,000, Credit Profit and loss ledger account £138,000
D Debit Profit and loss ledger account £138,000, Credit Rent expense £138,000

38. What is the journal entry for an accrual of rent expenses of £500?
A Debit Prepayments £500, Credit Rent expense £500
B Debit Accruals £500, Credit Rent expense £500
C Debit Rent expense £500, Credit Accruals £500
D Debit Rent expense £500, Credit Prepayments £500

39. At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the
company paid £38,000 for insurance for the year to 31 December 20X5.
What is the journal entry to transfer the balance on the insurance expense account to the profit
and loss ledger account for the year ended 30 June 20X5?
A Debit Profit and loss ledger account £27,200, Credit Insurance expense £27,200
B Debit Insurance expense £27,200, Credit Profit and loss ledger account £27,200
C Debit Profit and loss ledger account £36,700, Credit Insurance expense £36,700
D Debit Insurance expense £36,700, Credit Profit and loss ledger account £37,600