Reversing last year's adjustments
Each year-end adjustment is turned round on the first day of the new year. See why, and work out a full year's expense.
In this room: 3 tasks, 10 questions
- Why an accrual is reversed4 questions
- Reversing a prepayment2 questions
- A whole year with opening and closing adjustments4 questions
On the first day of the new year, each year-end adjustment is turned round. This is called reversing it.
Take the electricity accrual of £640. The reversal on 1 January debits Accrued expenses and credits Electricity.
In February the bill of £960 is paid, and the whole of it is debited to Electricity. The credit from the reversal cancels the part that was last year's cost.
Answer the questions below
3 more questions follow in this task.
A prepayment is reversed the other way round. The insurance prepayment of £1,600 was an asset at 31 December.
On 1 January it is moved back into the expense account, because the cover will be used in the new year.
- Debit the expense account
- Credit Prepaid expenses
Answer the questions below
1 more question follows in this task.
By the end of the new year, each expense has an opening adjustment, reversed on 1 January, and a fresh closing adjustment.
| Expense | Opening adjustment | Paid in the year | Closing adjustment |
|---|---|---|---|
| Telephone | Accrual 120.00 | 1,530.00 | Accrual 140.00 |
| Insurance | Prepayment 1,600.00 | 2,640.00 | Prepayment to work out |
- An opening accrual is taken off what was paid. A closing accrual is added.
- An opening prepayment is added to what was paid. A closing prepayment is taken off.
The insurance payment of £2,640 was made on 1 September, for the 12 months to 31 August.
Answer the questions below
3 more questions follow in this task.