ACCA/CAT

Session 7 Accruals and prepayments

Main Contents：

1.Accrued and prepaid expenses

2.Accrued and prepaid income

3.Prepayments and accruals in the financial statements

7.1 Accrued and Prepaid expenses

● Accrual basis of accounting:

The accrual basis of accounting is to record the income and expense in the statement of income as they are earned/ incurred regardless of whether cash has been received/ paid.

● Accrued expenses

Accrual: an item of expenses that has been incurred during the accounting period but has not been paid at the period end.

Dr.　　　Cr

Expense account　　　　 xx

Accrual　　　　　　　　　　　　 xx

Accruals are shown as Liability in the SFP.

● Prepaid expenses

Prepayment: an item of expenses that has been paid during the current accounting period but will not be incurred until the next accounting period.

Dr　　　　　 Cr

Prepayment　　　　 xx

Expense account　　　　　　　　　 xx

Prepayment are shown as Asset in the SFP.

7.2 Accrued and prepaid income

Some organizations also have sources of miscellaneous income which may also be received in advance or arrears.

Accrued income: income has been earned in the accounting period but has not yet been received.

Dr.　　　Cr.

Accrued income　xx

Income　　　　　　　　　　xx

Accrued income is an asset item in the SFP statement.

Prepaid income: income has been received in the accounting period but which relates to the next accounting period.

Dr.　　　Cr.

Income　　　　　xx

Prepaid income　　　　　　xx

Prepaid income is aliability item in the SFP statement.

7.3 Prepayments and accruals in the financial statements

The statement of financial position ( B/S)

ASSETS　　　　　　　 CAPITAL AND LIABILITIES

Currents　　　　　　　 Current liabilities

Inventories　　　　　　Payables

Receivables　　　　　　Accruals

Prepayments　　　　　Prepaid income

Accrued income

Cash at bank

Cash in hand

The income statement:

Accruals or prepayments of income and expenditure are included within the normal income/ expense charges in the I.S.

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