Question

QUESTION 1 Arthur Magee is preparing his financial statements for the year ending 31 December 2014 and approaches you for help on three ledger accounts. He provides you with the following information about the ledger accounts. Balances at 1 January 2014 Insurance paid in advance Wages outstanding Rent received in advance £562 £306 £36 Transactions During The Year Paid for insurance £1,019 by bank standing order Paid wages in cash £15,000 Received £2,600 rent by cheque Balances at 31 December 2014 Insurance prepaid Rent receivable in arrears Wages accrued £345 £105 £419 Prepare the three ledger accounts for Arthur Magee indicating the correct yearly charge to be included in the income statement

Answer 1

Solution: The following are the three ledger accounts included in Income Statement:

Insurance Expense = £ 1,236

Wages Expense = £ 15,113

Rent Revenue = £ 2,741

Insurance Expense
Cash Paid	£       1,019.00
Prepaid Expense	£          217.00
End Balance	£       1,236.00
Wages Expense
Cash Paid	£    15,000.00
Wages Accrued	£          113.00
End Balance	£    15,113.00
Rent Revenue
		Cash received	£     2,600.00
		Rent receivable in arrears	£        141.00
		End Balance	£     2,741.00

Working Notes:

1)

Insurance Expense					Prepaid Insurance
Cash Paid	£       1,019.00				Beg Balance	£     562.00
Prepaid Expense	£          217.00						Insurance Expense	£ 217.00
End Balance	£       1,236.00				End Balance	£     345.00
Wages Expense					Wages Accrued
Cash Paid	£    15,000.00						Beg Balance	£ 306.00
Wages Accrued	£          113.00						Wages Expense	£ 113.00
End Balance	£    15,113.00						End Balance	£ 419.00
Rent Revenue					Rent receivable in arrears
		Cash received	£     2,600.00				Beg Balance	£    36.00
		Rent receivable in arrears	£        141.00		Rent Revenue	£     141.00
		End Balance	£     2,741.00		End Balance	£     105.00