[Anonymous]

I very well may be missing something, which is why I am hoping someone can help me out. I have the Becker book (from previous use of Becker) but am using Wiley software for FAR.

I am currently working out an accrual/cash basis accounting problem from Wiley.

Ina Co. had the following beginning and ending balances in its prepaid expense and accrued liabilities accounts for the current year:

Prepaid expenses Accrued liabilities
Beginning balance $ 5,000 $ 8,000
Ending balance 10,000 20,000

Debits to operating expenses totaled $100,000. What amount did Ina pay for operating expenses during the current year?

Using the formula Becker gives, my numbers do not match up.

Becker formula:

Cash paid for operating expenses
+ Ending accrued liabilities
– Beginning accrued liabilities
– Ending prepaid expenses
+ Beginning prepaid expenses

Is this formula wrong or am I just stupid, ha.

Thanks in advance for any help you can provide!

[Sandy]

I prefer using journal entry to solve the problem.
The journal entry would be

Operating expense 100000
Prepaid expense 5000 (the difference of beg and end)
Accrured payable 12000 (the difference of beg and end)
cash paid 93000

[Anonymous]

This was very helpful. Thank you! I will use this method for similar problems.

[lam2848]

If you think about it, prepaid expenses went up by 5,000. Whenever prepaid expenses goes up, that means something was paid (Debit prepaid, credit cash) so you add 5,000. I'm assuming this guy is on an accrual basis. On an accrual basis they would not have necessarily booked the expense yet so you have to add it.

Accrued liabilities also increased. Whenever a liability increases you incurred something but it wasn't paid (debit expense, credit liability). on an accrual basis this guy already recorded the expense but it wasn't actually paid, so you have to subtract it.

100,000 + 5,000 – 12,000 = 93,000

[Ramana]

@sophie,
I understand the JE's but once you have the Dr's and CR's how do u know to subtract or add. This is logical but my brain messes up under pressure.

@OP: thanks for posting. I am using Wiley and it's very slow going with their TB. I am doing the UNA course.

[Ramana]

@lam2848,
When you debit expense, it increases expense so don't you have to add 12000. I am confused on how to answer these types of questions.

The Wiley tutor has videos but when you go into supplementary questions, you get completely lost.

Anybody know a trick to solve these?

[Sandy]

Prepaid expense usually have normal debit entry, so when prepaid expense increase, you should debit the prepaid expense.

Accrued liabilities usually have normal credit entry, so when accrued liability increases, you should credit accrued liabilities.

[Author]

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