A company pays its annual rent of $24,000 in arrears on 31 March each year. The company's financial year end is 31 December. What is the accrual for rent at 31 December 20X5?

Answer options:

$6,000

$18,000

$24,000

How to approach this question

Count the number of months between the last payment date and the year-end date. Multiply this fraction by the annual cost.

Full Answer

B.$18,000✓ Correct

The rent is paid in arrears, meaning the payment on 31 March 20X6 will cover 1 April 20X5 to 31 March 20X6. At the year-end of 31 December 20X5, the company has occupied the premises for 9 months (April to December) without paying. The accrual is 9/12 of $24,000 = $18,000.

Common mistakes

Calculating the prepayments for Jan-Mar instead of the accrual for Apr-Dec.

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