Amount Due & Amount Paid/Received (Cambridge International AS Accounting)

Amount due & amount paid/received

Can the amount due and the amount paid or received be different?

• The amount due is the amount that is owed for the financial period

  • This is the amount that gets transferred to the statement of profit or loss

• The actual amount paid (for an expense) or received (from an income) can be different

  • An underpayment results in an accrual
  • An overpayment results in a prepayment

• You might be given one of these amounts and asked to find the other

How do I calculate amount due for the year?

• STEP 1 Start with the amount that has been paid or received during the current financial period

• STEP 2 Deal with any amounts carried over from the previous financial period

  • Subtract the amount if it is an accrual

    • Because this amount was not due in the current period
    • It was due in the previous period

  • Add the amount if it is a prepayment

    • Because this amount is due in the current period

• STEP 3 Deal with any amounts that will be carried over to the next financial period

  • Add the amount if it is an accrual

    • Because this amount is due in the current period

  • Subtract the amount if it is a prepayment

    • Because this amount is not due in the current period
    • It will be due in the next period

Exam Hint For every value in the question, ask yourself "when is this amount due: last year, this year or next year?".

If it is due this year, then add the amount. Otherwise, subtract the amount. This is true for expenses and incomes.

Worked Example Hannah's financial years ends 31 March.

During the year ending 31 March 2024, Hannah received $4 000 rent from her tenants.

The following information is available:

		$
At 31 March 2023	Rent received in advance	400
At 31 March 2024	Rent in arrears	300

Calculate the amount of rent that Hannah should post to the statement of profit or loss for the year ending 31 March 2024.

Answer:

• Start with the amount that Hannah received during the year

• There was a prepayment at the start of the year

  • add this amount as it was due for this current year

• There was an accrual at the end of the year

  • add this amount as it was due for this current year

$4 000 + $400 + $350 = $4 700

How do I calculate the amount paid for an expense within a financial period?

• STEP 1 Start with the amount that is due for the current financial period

• STEP 2 Deal with any amounts carried over from the previous financial period

  • Add the amount if it is an accrual

    • Because this should have been paid or received in the current period

  • Subtract the amount if it is a prepayment

    • Because this was not paid or received in the current period
    • It was paid or received in the previous period

• STEP 3 Deal with any amounts that will be carried over to the next financial period

  • Subtract the amount if it is an accrual

    • Because this has not been paid or received during the current period
    • It will be paid or received in the next period

  • Add the amount if it is a prepayment

    • Because this was also paid or received during the current period

Exam Hint This method is the reverse of the finding the amount that is due.

Try to understand the logic behind the two methods above rather than memorising them.

• If you need to find the amount to include on the statement of profit or loss, then consider which amounts are due in the current financial period.
• If you need to find the amount that has been paid, then consider which amounts were paid during the current financial period.

Worked Example Garry is charged $4 200 each year for commission. At the start of the financial year, Garry was in arrears of $700 for commission. At the end of the financial year, Garry owed three months’ commission.

How much did Garry pay for commission during the financial year?

Answer:

Find the accrual at the end of the year

• STEP 1: Divide the yearly charge by 12 to get the monthly charge

$4 200 ÷ 12 = $350

• STEP 2: Multiply it by 3 to find the accrual at the end of the year

$350 × 3 = $1 050

Deal with the accruals at the start and end of the year

• Garry started the year with an accrual

  • so he also needed to pay that amount during the year
  • add this to the yearly charge

• Garry ended the year with an accrual

  • so he had not paid that during the year
  • subtract this from the yearly charge

$4 200 + $700 - $1 050 = $3 850