Concepts

Question 1

How would insurance paid in advance $4200 be applied using the accruals concept.

Answer 1

Transactions are recognized when they occur. Insurance paid in advance, $4200, for Jet Boat Tours and are recorded and reported as a Prepayment, a current asset, increasing by $4200 in the statement of Financial Position. In the Income Statement the Administration Expense- Insurance will decrease by $4200. This is because the transaction relates to the next Accounting Period.

Question 2

How would an invoice on hand for Boat Hire Revenue $2,300 including GST, has not been recorded.

Answer 2

Transactions are recognized when they occur. An invoice on hand sent by Jet Boat Tours for Boat Hire Revenue $2,300 GST inclusive will be recorded and reported in the financial statements as an increase in current asset Accounts Received and an increase in current liability GST by $300 in the statement of Financial Position. In the Income Statement, the Income- Boat Hire Revenue will increase by $2000. This is because this transaction relates to this Accounting Period.