The University of Zambia

Module 5 Assignment

Student Name: Mando Chalwe

Financial Reporting
Question one
The term "accrual interest" is used to describe the amount of interest that has accrued

during a reporting period but has not yet been paid out of pocket. Both the borrower and

the lender will record the monthly interest accrual as an accrual adjustment entry at the end

of the month. Interest income or expense on the income statement and a receivable or

payment on the balance sheet make up the entry. Accrued interest is considered a current

asset or current debt because it is often repaid within a year. Interest expense is debited and

accrued interest payable is credited in the borrower's entry. Lender's journal entry reflects a

reduction in accumulated interest receivable and an increase in interest revenue (Corporate

Finance Institute, N.d.). In the income statement, interest on loans and borrowings are

recorded as income and expenses, respectively. What's more, the balance sheet will show

the unpaid or uncollected amount of income or expense as an asset or liability. Accrued

interest is often categorized as either a current asset or a current liability since it is

expected to be earned or paid within the next year (Kenton W, 2019).

Other Current Assets include things like accrued interest income, which is an asset on

the books of investors but a current liability for issuers. Accrued Interest Receivable is a

liability that develops when one investor owes money to another party in the form of
 interest on a bond, security, or bank deposit and that interest is due to be paid at some

future date (often monthly, quarterly, or yearly).

In the time that the money was earned, it should be recorded as a debit on the balance sheet

(Interest Receivable)

Credit: Income Statement (Interest charged on Bank Deposit)

A additional double entry is required in the accounting period when the money comes in.

This will be Debit: Balance Sheet (Bank)

Credit: Balance sheet (Interest receivable)

The interest on Zamtel Ltd.'s fixed deposit account totals ZMW 1,000. Payment of interest

for the period of July 2019 through December 2019 is delayed until January 2020. In

December, we'll get a double entry that consists of

Debit: Interest income receivable 1000zmw

Credit: Interest charged on fixed deposit Account 1000zmw

The double entry occurs in the period that corresponds to the time that the money comes in.;

Debit: Bank 1000zmw

Credit: Interest income receivable 1000zmw

Question two
 A company's prepaid expenses are those that have been paid for in advance but not yet

deducted from the company's operating budget. Prepaid expenses, on the other hand, are

payments made in one accounting period that won't be recognized until a later accounting

period. Due to the expected monetary benefit from now on, prepaid costs are initially

recorded as resources and are subsequently recorded as expenses (Corporate Finance

Institute, n.d) Insurance installments and lease stores are the most widely recognized

instances of prepaid expenses.

Since the business has not yet used the service that has been prepaid for, the related

expense is shown as an asset on the balance sheet. Only after the item is used up will the

corresponding expense be removed from the income statement. Expenses related to services

consumed over time will similarly accrue in the income statement. Due to the short-term

understatement of assets and profits, prepaid expenses must be recorded as assets. Current

assets are assets that are expected to be converted into cash within a year, such as the cost

of goods sold.

Financial statements are not affected by the original journal entry for a prepaid expense.

Prepaid rent is recorded first as a debit from prepaid rent and a credit to cash in the

accounting ledger. Both of these accounts are considered assets and have no impact on a

business's net worth. A company's prepaid expenses are an asset since they will yield future

financial advantages. However, a company's income statement and balance sheet will be

affected by the adjusting journal entry for a prepaid expense (Corporate Finance Institute,

n.d.). For Prepaid Expenses, the primary double entry looks like this;

Debit: Balance sheet (prepaid expense)

The account must be reconciled at the conclusion of the time to determine whether or not the

balance has been depleted. The equivalent of this in the ledger book is

Debit: Actual expense

Credit: Prepaid expense

Example:

Zamtel Ltd. has agreed to pay 100,000zmw in advance as Rent for the following year. The

initial pair of entries is:

Debit: Prepaid Expenses 100000zmw

Credit: Cash 100000zmw

The following duplicate entry is made at the end of each quarter to amortize the prepaid
expenditures, resulting in the full amount of the prepaid Rent being charged to the
expenditure by the close of the year. Here's how the double entry works:

follows:

Debit: Rent 100000zmw

Credit: Prepaid Expenses 100000zmw

Corporate Finance Institute. (N.d.). What is Accrued Interest?

Retrieved from

[Link]

counting/accrued-interest/

Corporate Finance Institute. (N.d.). What are Prepaid Expenses?

Retrieved from

[Link]

ounting/prepaid-expenses/

Kenton W. (2019). Accrued Interest. Retrieved from

[Link]
%20accounting%2C%20accrued
%20interest%20refers,interest%20expense%2C%20for%20the%20borrower.