Page 185 - DMGT104_FINANCIAL_ACCOUNTING

Unit 8: Financial Statements

Solution: Notes
Journal Entries
Dr. Cr.
Date Particulars L.F. ( ) ( )
1.10.10 Insurance Premium A/c Dr. 5,000
To cash A/c 5,000
(Insurance Premium paid)
31.3.11 Prepaid Insurance Premium A/c Dr. 2,500
To Insurance Premium A/c 2,500
(Advance payment of Premium for six months)

Ledger Accounts
Insurance Premium A/c
(for the year ending 31st March 2011)
Dr. Cr
Date Particulars L.F ( ) Date Particulars L.F ( )
1.10.10 To cash A/c 5,000 31,3,11 By prepaid Insurance A/c 2,500
By P & L A/c 2,500
5,000 5,000

(2) Prepaid Insurance A/c
Dr. Cr
Date Particulars L.F ( ) Date Particulars L.F. ( )
31.3.11 To Insurance 2,500 31.3.11 By Balance c/d 2,500
Premium A/c

Balance Sheet
(as on 31.3.11)
Liabilities ( ) Assets ( )
Prepaid Insurance A/c 2,500

3. For Accrued Incomes of the Business

Accrued incomes are revenues that have been earned but cash has not yet been received
and no transaction has been recorded. Incomes which are due/earned but not received, are
not recorded in the books of accounts unless such incomes are received, but if this practice
continues, then it is not good because the results shown by the trading and Profit & loss
A/c would not be correct such Incomes may be rent, interest, commission etc.
Accrued Income Account Dr.
To Relating Income Account
The accrued incomes are disclosed in the assets side of the Balance Sheet and added in
income in the credit side of the Profit & Loss Account.
Illustration 11: Mr. Das has let out premises on rent on 01.07.10 @ 2,000 per month but rent is
receivable at the end of one year whereas accounts are closed on 31st March 06. Pass necessary
journal entries to give its effect and prepare ledger accounts and show how the item would
appear in the Balance Sheet as on 31.03.11.

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