Electricity paid during the year was £3,600. At the start of the year there was an accrual of £400 and at the end of the year an invoice of £500 is outstanding for the last quarter. What is the electricity expense for the year?
Answer and explanation
Correct answer: D. £3,700
- Step 1: Expense = cash paid + closing accrual − opening accrual.
- Step 2: = £3,600 + £500 − £400.
- Step 3: = £3,700.
Answer
£3,700.
Why not the others: £3,600: This uses the cash paid and ignores both the opening and closing accruals. £3,500: This reverses the signs of both adjustments, deducting the closing accrual and adding the opening one. £4,500: This adds both accruals instead of adding the closing accrual and deducting the opening one.
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