Acca financial Accounting (FA) Study Text ac ca (FA)

Illustration 2 – Prepaid expenditure 

 

The annual insurance charge for a business is $24,000 pa. $30,000 was 

paid on 1 January 20X5 in respect of future insurance charges. 

For the year-ended 31 December 20X5 what is the closing 

prepayment and the insurance expense for the year? 

Show the relevant entries in the ledger accounts.

 

 

 

Solution to Illustration 2 

 

•

 

The total expense charged to the statement of profit or loss in 

respect of insurance should be $24,000. 

•

 

The year-end prepayment is the $6,000 that has been paid in 

respect of 20X6. 

The accounting entries required are: 

Dr Prepayment $6,000 

Cr Insurance expense $6,000 

 

 

 

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