{m}.{s}.1Reversal of opening accrual

Now let us consider the year to 30/6/08.

Time line from March 06 to June 08.  Next payment indicated as in August 2008.[{m}.{s}a]

Let us look at the opening position in our T accounts.

Rent
    
    
    
    
    
Accruals
  2007 
  Jul 1 Bal b/f400
    
    
    

[{m}.{s}b]

Our T accounts show the opening accrual of £400 due for the months March - June 2007. Let us start by reversing this opening accrual.

The balance on the Accruals account is now cleared to zero - it will remain at zero until we enter the accruals at the year end.

{m}.{s}.2Second year's payment

The next event to affect the Rent account is the payment of £1,200 on 15 July 2007.

Rent
2007 2007 
Jul 15 Bank1,200Jul1 Accruals400
    
    
    
Accruals
2007 2007 
Jul 1 Rent400Jul 1 Bal b/f400
    
    
    

[{m}.{s}d]

Note that the balance on the Rent account is now £800, - the amount paid £1,200 has been reduced by the amount that was due for the previous year £400.
There are no further entries in the Rent account until the year end. We must now consider the accrual/prepayment position at 30 June 2008.

The rent paid in the year covers the period up to 28/2/08. Rent is due for March - June 2008.

£1,260 is paid in August 2008, for the year March 2008 - February 2009.

Accrued rent at 30/6/08 is £420.

Our adjustment to record the accrual at 30/06/08 is:

The balance in the Rent account will now be transferred to the profit and loss account for the year to 30/6/08.

The balance in the Accruals account will be included in the balance sheet at 30/6/08.

Rent
2007 2007 
Jul 15 Bank1,200Jul1 Accruals400
2008 2008 
June 30 Accruals420Jun 30 P&L a/c1,220
 1,620 1,620
Accruals
2007 2007 
Jul 1 Rent400Jul 1 Bal b/f400
  2008 
  Jun 30 Rent420
    

[{m}.{s}f]

We again check the balances in these accounts.

Time line from March 06 to June 08.  Additional shading showing 420 relating to 4 months ending 30 June 2008 and remaining 840 relating to 8 months ending Feb 2009. [{m}.{s}g]

07/08 rent expense:

Balance sheet 30/6/08