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Zorluk: KolayAccrued and Prepaid Expenses

During the financial year ended 31 December 2025, a business paid ₦50,000\text{₦}50,000 for insurance. On 31 December 2025, it was determined that ₦10,000\text{₦}10,000 of this amount was paid in advance for the following year. What is the net amount to be charged to the Profit and Loss Account for insurance for the year ended 31 December 2025?

  1. ₦40,000\text{₦}40,000Cevap
  2. B
    ₦60,000\text{₦}60,000
  3. C
    ₦50,000\text{₦}50,000
  4. D
    ₦10,000\text{₦}10,000

Cevap

The net amount to be charged to the Profit and Loss Account is ₦40,000\text{₦}40,000.
Under the accruals concept, only expenses relating to the current accounting period are charged to the Profit and Loss Account. Subtracting the prepaid amount of ₦10,000\text{₦}10,000 from the total payment of ₦50,000\text{₦}50,000 gives the correct charge of ₦40,000\text{₦}40,000.

Adım Adım Çözüm

1
Identify total insurance paid during the year
Total payment = ₦50,000\text{₦}50,000
This is the initial cash outlay recorded in the cash book.
2
Deduct prepaid insurance for the next accounting period
Profit and Loss charge = ₦50,000−₦10,000=₦40,000\text{₦}50,000 - \text{₦}10,000 = \text{₦}40,000
According to the accrual concept, expenses paid in advance for a future period must be excluded from current year expenses.

Anahtar Kavram

Prepaid expenses adjustment in final accounts
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Konular

Accrued and Prepaid Expenses

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