Identify the accrued income prepaid income expenditure and c

Identify the accrued income, prepaid income, expenditure and calculate the taxable income for Murray. He operates a fitness school and use accrual basis accounting for his business. He provides the following information (all amounts are exclusive of GST) for the year of 2013/14: (PC - 1.6) Murray had the receipts: • Cash takings from casual lessons $18,000 • Receipts from regular customers $288,000 (All bookings are received in advance of the actual lessons) He had the following account balance: • Income received in advance as at 1 July 2013 $22,000 • Income received in advance as at 30 June 2014 $28,000 He also incurred the payments on 1 January 2014: • For the following 12 months rent of the business premises $40,000 • For the following 12 months lease of the business equipment $46,000

Solution

Receipts From regular Customers    288,000.00 Cash Takings from Casual Income      18,000.00 Total Receipts    306,000.00 Add: Income Recd. In Advance - July 1      22,000.00 Sub-Total    328,000.00 Less: Income Received in Advance- July 31    (28,000.00) Accrued Income    300,000.00 Prepaid Rent - Jan 1 2014      40,000.00 Rent Expense per Month - $40,000 / 12        3,333.33 Lease of Business Equipment      46,000.00 Lease Expense per Month - $46,000 / 12        3,833.33 Prepaid Rent on July 31 - $40,000 - ($3,333.33 X 7 Months)      16,666.67 Prepaid Lease Rent on July 31 - $46,000 - ($3,833.33 X 7 Months)      19,166.67 Expenses for the Month of July, 2014 Rent Expense        3,333.33 Lease of Business Equipment        3,833.33 Total Expense        7,166.67 Accrued Income    300,000.00 Less: Expense        7,166.67 Taxable Income    292,833.33