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Difficulty: EasyAccrued and Prepaid Income

During the financial year, a business received ₦75,000₦75,000 cash for rent income. At the end of the financial year, ₦15,000₦15,000 of this amount represented rent received in advance for the following year. What is the total amount of rent income (in ₦₦) to be credited to the Profit and Loss Account for the year?

Answer: 60000 ₦

Answer

The total amount of rent income to be credited to the Profit and Loss Account for the year is ₦60,000₦60,000.
To calculate the rent income earned during the financial period, closing prepaid rent income is subtracted from the total cash received (₦75,000−₦15,000=₦60,000₦75,000 - ₦15,000 = ₦60,000).

Step-by-Step Solution

1
Identify cash received during the year
Cash received = ₦75,000₦75,000
This represents total cash inflows recorded for rent during the financial period.
2
Deduct closing prepaid income
Income for P&L = ₦75,000−₦15,000=₦60,000₦75,000 - ₦15,000 = ₦60,000
According to the accrual concept, income received in advance relates to the subsequent accounting period and must be deducted from the current year's Profit and Loss Account.

Key Concept

Adjustment for Prepaid Income in Final Accounts
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Topics

Accrued and Prepaid Income

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