# USAQuestion on Cash to Accrual

#### southerndawg

Hey guys I have a question in regards to a cash to accrual problem in regards to prepaid rent.

Wade & Sons had cash inflows of \$107,000 and outflows of \$59,000 during 2009. The following information was available:

Accounts receivable, 1/1/09: \$43,000
Accounts receivable, 12/31/09: 61,000
Accrued liabilities, 1/1/09: 29,670
Accrued liabilities, 12/31/09: 73,000

In addition, unearned revenue of \$5,300 (on the books at 1/1/09) were earned during the year and 6 months of prepaid rent of \$18,000 was paid on November 1, 2009.

Basically I have it all figured out until the prepaid rent part. My professor during class said that \$12,000 of the prepaid rent [\$18,000 - (\$18,000/6) x 2] had to be subtracted from the cash flows and I was just wondering as to why it was \$12,000 instead of \$6,000. Thanks!

#### Triest123

VIP Member
Hey guys I have a question in regards to a cash to
Basically I have it all figured out until the prepaid rent part. My professor during class said that \$12,000 of the prepaid rent [\$18,000 - (\$18,000/6) x 2] had to be subtracted from the cash flows and I was just wondering as to why it was \$12,000 instead of \$6,000. Thanks!
=> You need to compute the actual expenses for the Jan -Dec 2009
The rent paid period is 1 Nov 09 - 30 Apr 10 (i.e. six months)
The rental expenses for 1 Nov 09 - 31 Dec 09 (i.e. 2 months) = \$6,000

The actual rent prepaid (i.e. after the finanical year 2009) = \$12,000 (i.e. 4 months),
which should be subtracted from the cash flows

The expenses for the year 2009 = 59,000 - 29,670 + 73,000 - 12,000
= \$90,330