Question

"Lee received the following rent bills during the year (year end is the 31 Dec X7):

Bill period Amount Paid
Nov 20X6 - Jan 20X7 2,100 Oct 20X6
Feb 20X7 - Apr 20X7 2,100 Feb 20X7
May 20X7 - Jul 20X7 2,400 Jun 20X7
Aug 20X7 - Oct 20X7 2,400 Oct 20X7
Nov 20X7 - Jan 20X8 2,400 Feb 20X8

What will be the opening and closing balances on the prepayments account?"

Answer 1

The opening balance of the prepayments account will be $8,100 and the closing balance will be $0.

Step-by-step explanation:

The opening balance of the prepayments account will be $8,100 and the closing balance will be $0.

To calculate the opening balance, we need to add up the rent bills that have been paid in advance up to the beginning of the year.

In this case, the rent bills paid in advance are $2,100 from Nov 20X6 - Jan 20X7 and $2,100 from Oct 20X6 - Feb 20X7. Therefore, the opening balance is $2,100 + $2,100 = $4,200.

Now, to calculate the closing balance, we need to subtract the rent bills that have been paid in advance but haven't been used up yet.

In this case, the rent bills that haven't been used up yet are $2,400 from Nov 20X7 - Jan 20X8 and $2,400 from Feb 20X8. Therefore, the closing balance is $4,200 - $2,400 - $2,400 = $0.