On 1 January 2025, a business recorded commission income accrued of ₦14,500 and commission… — JAMB UTME

On 1 January 2025, a business recorded commission income accrued of $₦14,500$ and commission income received in advance of $₦8,000$ . During the year ended 31 December 2025, total cash received and banked for commission was $₦165,000$ . At 31 December 2025, commission income accrued stood at $₦19,000$ , while commission income received in advance was $₦11,500$ . What is the total amount of commission income to be credited to the Profit and Loss Account for the year ended 31 December 2025?

Answer: 166000 ₦

Answer

The total commission income to be credited to the Profit and Loss Account for the year ended 31 December 2025 is ₦166,000.

In accordance with the accrual concept, the Profit and Loss Account must be credited only with income earned during the financial period. Calculating the net income for 2025 requires adding opening prepaid income (₦8,000) and closing accrued income (₦19,000) to cash received (₦165,000), while deducting opening accrued income (₦14,500) and closing prepaid income (₦11,500). This gives a total credit of ₦166,000.

Step-by-Step Solution

Determine the cash received during the accounting year

Cash received = ₦165,000

This is the initial cash flow figure recorded in the cash book during the period.

Adjust for opening accruals and prepayments at 1 January 2025

Adjusted cash figure = ₦165,000 + ₦8,000 - ₦14,500 = ₦158,500

Opening prepaid income relates to the current year and must be added. Opening accrued income relates to the prior year and was collected in the current year, so it must be subtracted.

Adjust for closing accruals and prepayments at 31 December 2025

Final Profit & Loss credit = ₦158,500 + ₦19,000 - ₦11,500 = ₦166,000

Closing accrued income was earned in the current period and must be added. Closing prepaid income relates to the next period and must be subtracted.

Key Concept

Accrual basis of accounting for income recognition

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