Self-test Knowles started in business as a landscape gardener on 1 April 2006. Knowles has recorded all his transactions in a cashbook and the following extracts have been obtained from the accounting records covering the first year of trading to 31 March 2007.

Bank receipts (extract)

Date Details £

18/10/06 Insurance refund 60 Bank payments (extract)

Date Details £

15/04/06 Telephone installation charges 125 07/05/06 Insurance to 31/12/06 975 15/07/06 Telephone bill 1

/4 (three months) to 30/06/06 230 31/07/06 Road fund licence for the year to 31/07/07 165 15/08/06 Rates to 31/03/07 1,175 15/10/06 Telephone bill 1

/4 to 30/09/06 245 07/11/06 Motor repairs 430 25/12/06 Insurance to 31/12/07 1,500 15/01/07 Telephone bill 1

/4 to 31/12/06 262 31/03/07 Rates to 31/03/08 1,250 Knowles received a telephone bill on 15 April 2007 for the quarter ended 31 March 2007, totalling £295.

Required:

(a) Record the information from the bank receipts and bank payments extracts in the general ledger accounts for insurance, telephone, motor expenses and rates.

(b) Calculate the relevant accruals and prepayments at 31 March 2007 and record in the general ledger accounts for insurance, telephone, motor expenses and rates.

(c) Balance off the general ledger accounts for insurance, telephone, motor expenses and rates, clearly showing the total expense transferred to the trading, profit and loss account.

(d) Explain why a business would calculate and include accruals and prepayments in its financial statements and identify how accruals and prepayments are disclosed on the financial statements.