Hi i need help with the following transactions. Right now we are learning about the accrual basis of accounting.
1.Rent Payments included $750 per month rental fee and a $900 deposit that is refundable at the end of the 2 yr lease.
2.The company manager used her personal automobile for business purposes: 10,000 km at 35 cents per km. She was not paid for the use of her car but would like to be.
Additional information:
Prepaid Rent at December 31, 2006 was 9900.
I'm not sure how to do the first one.
For the second one is it just:
Miscellaneous Expense debit 3500 and A/P credit 3500.
To answer the first transaction, we need to understand the concept of accrual accounting and the specific details of the rent payments.
Accrual accounting records transactions when they occur, not when the cash is exchanged. In this case, we have a rental fee of $750 per month and a $900 refundable deposit.
To properly account for this transaction, we need to separate the rental fee and the deposit:
1. Rent Expense: For each month of the lease, we need to recognize the rent expense. Since the rental fee is stated as $750 per month, we would debit Rent Expense for $750.
2. Prepaid Rent: At the start of the lease, the $900 deposit is collected. However, since it is refundable, it should not be recognized as an expense right away. Instead, we will classify it as Prepaid Rent, which is a current asset. To record this, we would credit Prepaid Rent for $900.
At the end of each month, you would then reverse the rent expense for $750 and reduce the prepaid rent by $750 until it reaches zero. This way, the rent expense is spread over the period of the lease.
For the second transaction regarding the personal use of an automobile by the company manager:
To properly record this transaction, we need to calculate the expense based on the distance traveled and the reimbursement rate.
1. Calculate the business use expense: Multiply the total kilometers driven (10,000) by the per kilometer reimbursement rate (35 cents). In this case, the expense would be $3,500 (10,000 km x $0.35/km).
2. Miscellaneous Expense: Debit the Miscellaneous Expense account for the calculated expense ($3,500) to record the business use of the personal automobile.
3. Accounts Payable (A/P): Credit Accounts Payable for the same amount ($3,500) to indicate that the company owes the manager for the business use of her car.
Please note that the specific accounts used (e.g., Miscellaneous Expense, Accounts Payable) may vary depending on your company's chart of accounts or accounting system. It's essential to consult your company's accounting guidelines or consult with an accountant if you're unsure about the correct accounts to use in your specific situation.