Adjusting expense for accruals and prepayments to find cash paid

Steps:

• Identify total expense for rent and rates: $730.
• For rent accrual: add opening accrual ($800) and subtract closing accrual ($700), increasing cash by $100.
• For rates prepayment: subtract opening prepayment ($400) and add closing prepayment ($820), increasing cash by $420.
• Calculate total cash paid: $730 +$100 + $420 =$1,250.

Why B is correct:

• B ($1,250) matches the formula for cash payments: expense + (opening accrual – closing accrual) + (closing prepayment – opening prepayment).

Why the others are wrong:

• A ignores accrual and prepayment adjustments, using expense directly.
• C omits prepayment effect, understating cash paid.
• D reverses accrual adjustment, overstating cash paid.

Final answer: B