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Accruals and Prepayments Form 3
Accruals and Prepayments Form 3
Accruals concept is the accounting concept whereby all incomes and expenses are matched to the
period in which they are incurred.
Accrued expenses
refers to expenses incurred by the business for which no payment has been made.
they may be called amounts owing, amounts due or outstanding amounts.
when preparing financial statements, any amount owing should be added to the expense
concerned in the Income Statement.
in the Statement of Financial Position, the amount owing should be recorded under
Current Liabilities as other payables.
for example, the business pay rent of $100 per month and during the year, a total amount
of $1 000 was paid for rent. The business has an outstanding amount of $200. This
amount is said to be owing or accrued or outstanding.
Prepaid expenses
refers to expenses paid for by the business for which services have not been provided.
they are expenses paid in advance.
when preparing financial statements, the amounts paid in advance should be subtracted
from the expense in the Income Statement.
in the Statement of Financial Position, the amount prepaid is recorded under Current
Assets as other receivables.
for example, the business pays insurance of $120 per annum but during the year, a total
of $150 had been paid. This means that the business had paid $30 in advance.
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Exercise
1. The following data relates to the account of electricity over the year of 2012.
$
Electricity owing from 2011 as at 31 December 2011 37
Amounts paid for electricity during 2012 421
Electricity prepaid for 2013 as at 31 December 2012 56
Required:
Prepare Electricity Account and bring down balances as at 1 January 2013. [5]
2010
On 31 January 2010, $2 000 was owing for rent. On the same date, $3 500 had been paid
in advance for Insurance.
Required:
Prepare the Rent Account and Insurance Account and bring down the balances on 1
February 2010 [12].
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ACCRUED REVENUES / INCOMES
-Accrued income is income relating to a particular accounting period which has not been
received at the end of that period.
-these are revenues which are to be received by the business for a particular period but have
not yet been received.
-accrued revenues should be added to the revenue received in the income statement.
-in the statement of financial position they are recorded under Current Assets
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-Prepaid income is income received during the financial year which relates to a future
accounting period.
-these are revenues which have been received by the business in advance
-they should be subtracted from the revenue received in the income statement.
-in the statement of financial position, they are recorded under Current Liabilities.
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