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Difficulty: MediumAccrued and Prepaid Income

The following details relate to rent income of a business for the financial year ended 31 December 2025:

ItemAmount (₦)
Rent received in cash during 2025380,000
Rent accrued as at 1 January 202525,000
Rent accrued as at 31 December 202540,000
Rent received in advance as at 31 December 202518,000

What is the amount to be credited to the Profit and Loss Account as rent income for the year ended 31 December 2025?

Answer: 377000 ₦

Answer

The amount to be credited to the Profit and Loss Account as rent income for the year ended 31 December 2025 is ₦377,000.
Under the accrual concept of accounting, income credited to the Profit and Loss Account reflects revenues earned during the accounting period rather than cash received. The formula is: Net Income = Cash Received - Opening Accrued Income + Closing Accrued Income - Closing Prepaid Income. Substituting the given values yields: ₦380,000 - ₦25,000 + ₦40,000 - ₦18,000 = ₦377,000.

Step-by-Step Solution

1
Identify the total cash received for rent
₦380,000
This represents the total cash inflows recorded in the cash book for rent during the year.
2
Deduct opening accrued rent income
₦380,000 - ₦25,000 = ₦355,000
Accrued income at the start of the year was earned in the previous financial year and must be excluded from current revenue.
3
Add closing accrued rent income
₦355,000 + ₦40,000 = ₦395,000
Accrued income at the end of the year was earned during the current period and must be included regardless of cash collection.
4
Deduct closing prepaid rent income
₦395,000 - ₦18,000 = ₦377,000
Rent received in advance at year-end relates to the next accounting period and must be deferred.

Key Concept

Determination of income earned during an accounting period using the accrual concept.
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Topics

Accrued and Prepaid Income

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