Prepaid and Accrued Expense

[Anthony.]

I am still trying to understand this and I have the following question to do.

It shows this in a table form:

20x7 20x6
$m $m
____________________________________________________
Prepayments and deferred expenses 50.8 52.0

Assume this amount all related to insurance and that $70 million cash was paid during the year to the insurance company. What is the insurance expense for the 20x7 financial year?

Now I believe a prepared expense is something you pay before you have incurred an obligation to pay it. Would that mean I would simply add 70 to the 50.8 and $120.8million is the insurance expense for the year? Or am I completely off track?

As for Accrued Expense. The question is:
Coca-Cola Amatil Limited, in a recent annual report, included an amount of $306.7 million in accrued charges ($297.1 million in 20x5). Assume that all these accrued charges related to wages. If the wages paid during the year were $500 million, what was the wages expense for 20x6?

And since Accrued Expense acts as a liability wouldn't that also be summing up $306.7 & $500 to get the answer?

I feel pretty lost, so I might not even make sense. Please help!

 

[Triest123]

I am still trying to understand this and I have the following question to do.

It shows this in a table form:

Now I believe a prepared expense is something you pay before you have incurred an obligation to pay it. Would that mean I would simply add 70 to the 50.8 and $120.8million is the insurance expense for the year? Or am I completely off track?

And since Accrued Expense acts as a liability wouldn't that also be summing up $306.7 & $500 to get the answer?

I feel pretty lost, so I might not even make sense. Please help!

Now I believe a prepared expense is something you pay before you have incurred an obligation to pay it. Would that mean I would simply add 70 to the 50.8 and $120.8million is the insurance expense for the year? Or am I completely off track?

=> The insurance expenses for the year 20x7 is "70m + 50.8m - 52m" = 68.8m

Accrued Expense acts as a liability wouldn't that also be summing up $306.7 & $500 to get the answer?

=> The wages expense for 20x6 is " 500m - 297.1m + 306.7m" = 509.6m

 

[Anthony.]

So I was sorta on track.. thanks a lot Triest123! I really appreciate your help.

 

[Whoknowsbest]

Prepaids

A prepaid expense is when you have paid an invoice in advance for a specific time period. For example, your insurance policy is due in January, but it is the insurance for January to December of the current year. You would put the total as a "prepaid insurance" and reduce the amount every month to your "insurance expense" until the end of December when it would be zero and the whole amount would be in your expenses.