ACCRUALS & PREPAYMENTS

APPLICATION TO ACCOUNTING PRINCIPLE

•MATCHING
EXPENSES
ACCRUED EXPENSES
WHAT ARE ACRRUED EXPENSES?

• PAYMENT
DATE
ACCRUED
EXPENSE
• BEGINNING OF • ENDING OF
EXPENSE’S EXPENSE’S
BENEFIT BENEFIT
CURRENT
LIABILITIES
The payment is after enjoying the benefit
EXAMPLE

Accounting Period • 5 April

2008, Paid
Telephone
Expense Expense Expense Expense Expense
Period Period Period Period

• 1 April • 4 October • 31 March

2007, • 30 June 2007, Paid • 3 january 2008,
Salman 2007, Paid Telephone 2008, Paid Invoice of
started Telephone $ 56 by Telephone $ 59
business $ 44 on cheque by cheque Telephone
cash $ 62 Received
LEDGER

Accounting Period 5 April 2008, Paid

Telephone Expense

1 April 2007, Salman 30 June 2007, Paid 4 October 2007, Paid 3 january 2008, Paid 31 March 2008,
started business Telephone $ 44 on Telephone $ 56 by Telephone by Invoice of $ 59
cash cheque cheque $ 62 Telephone Received

Dr Telephone Expense Account Cr Amount of

2007 2008 Telephone’
June 30 Cash 44 Mar 31 Income 221 s Benefit
Statement enjoyed for
Oct 4 Bank 56 the year
2008
Jan 3 Bank 62
Mar 31 Balance c/d 59
221 221
April 1 Balance b/d 59
Accrued
Expense
INCOME STATEMENT (EXTRACT)

Dr Telephone Expense Account Cr

2007 2008
June 30 Cash 44 Mar 31 Income 221
Statement
Oct 4 Bank 56
2008
Jan 3 Bank 62
Mar 31 Balance c/d 59
221 221
April 1 Balance b/d 59

Salman
Extract from Income Statement for the year ended 31 March 2008

Expense – Telephone 221

BALANCE SHEET (EXTRACT)

Dr Telephone Expense Account Cr

2007 2008
June 30 Cash 44 Mar 31 Income 221
Statement
Oct 4 Bank 56
2008
Jan 3 Bank 62
Mar 31 Balance c/d 59
221 221
April 1 Balance b/d 59

Salman
Extract from Balance Sheet at 31 March 2008

Current Liabilities
Other Payables (Accrued Telephone Expense) 59
PREPAID EXPENSES
WHAT ARE PREPAID EXPENSES?

• PAYMENT
DATE
PREPAID
EXPENSE
• BEGINNING OF • ENDING OF
EXPENSE EXPENSE
PERIOD PERIOD
CURRENT
ASSETS
The payment is before enjoying the benefit
EXAMPLE

Accounting Period Insurance

Period

• 1 April 2007, • 1 July 2007, • 31 March 2008, • 30 June 2008,

Salman started paid Insurance End of the End of
business $600 with financial year Insurance year
cheque for 1
year
LEDGER

Accounting Period Insurance Period

1 July 2007, 31 August 2007 30 September 31 October 30 November 31 December 31 January 2007 28 February 30 April 2008 31 May 2008 30 June 2008,
1 April 2007, 31 July 2007 31 March 2008,
paid Insurance 2007 2007 2007 2007 2008 End of
Salman started $600 with End of the Insurance year
business cheque for 1 financial year
year

Dr Insurance Account Cr Amount of

2007 2008 Insurance’s
July 1 Bank 600 Mar 31 Income 450 benefit
Statement
enjoyed for
Balance c/d 150 the year
600 600
2008
Apr 1 Balance b/d 150

Prepaid
Expense
INCOME STATEMENT (EXTRACT)

Dr Insurance Account Cr
2007 2008
July 1 Bank 600 Mar 31 Income 450
Statement
Balance c/d 150
600 600
2008
Apr 1 Balance b/d 150

Salman
Extract from Income Statement for the year ended 31 March 2008

Expense – Insurance 450

BALANCE SHEET (EXTRACT)

Dr Insurance Account Cr
2007 2008
July 1 Bank 600 Mar 31 Income 450
Statement
Balance c/d 150
600 600
2008
Apr 1 Balance b/d 150

Salman
Extract from Balance Sheet at 31 March 2008

Current Assets
Other Receivables (Prepaid Insurance Expense) 150
INVENTORY OF STATIONERY
EXAMPLE 11.3

• 1 April 2007, • 31 March 2008,

Salman started the value of
business inventory of
stationery was
at $36
• During the year ended 31 March 2018, Purchased stationery
costing $113
Example 11.3

Dr Stationery Account Cr
2008 2008
Mar 31 Bank 113 Mar 31 Income 77 Amount of
Statement Stationery’
Balance c/d 36 s benefit
113 113 enjoyed for
2008 the year
Apr 1 Balance b/d 36

Prepaid Expense
(inventory of Stationery)
DIFFERENCES BETWEEN ACRRUED & PREPAID
EXPENSES

•ACCRUED • Paid after enjoying the benefit

• Included as the current year's

EXPENSES expense
• Current Liabilities

•PREPAID • Paid before enjoying the benefit

• Excluded from the current year's

EXPENSES expense
• Current Assets
INCOME
 INCOME VS EXPENSE

• GIVE • PAID
SELLER (INCOME SERVICE (EXPENS BUYER
) E)
ACCRUED INCOME
WHAT IS ACRRUED INCOME?

• PAYMENT
DATE
ACCRUED
INCOME
• BEGINNING OF • ENDING OF
INCOME’S INCOME’S
BENEFIT BENEFIT
CURRENT
ASSET
The payment received after giving the service
EXAMPLE

• 2 April 2008,
Received
Accounting Period commission for
6 months sales $
135 in cheque
Expense Expense
Period Period

• 1 April 2007, • 1 October 2007, • 31 March 2008,

Salman started received End of financial
business commission for year
six months sales
$ 120 in cheque
 LEDGER
2 April 2008, Received
commission for 6 months sales
Accounting Period $ 135 in cheque

1 April 2007, Salman started 1 October 2007, received

business 31 March 2008, End of
commission for six months
financial year
sales $ 120 in cheque

Dr Commission Received Account Cr

Amount of
Commission 2008 2007

Service March 31 Income 255 Oct 1 Bank 120

Statement
given for
2008
the year
March 31 Balance c/d 135
255 255
Accrued April 1 Balance b/d 135
Income
INCOME STATEMENT (EXTRACT)

Dr Commission Received Account Cr

2008 2007
March 31 Income 255 Oct 1 Bank 120
Statement
2008
March 31 Balance c/d 135
255 255
April 1 Balance b/d 135

Salman
Extract from Income Statement for the year ended 31 March 2008

Other Income – Commission Received 255

BALANCE SHEET (EXTRACT)

Dr Commission Received Account Cr

2008 2007
March 31 Income 255 Oct 1 Bank 120
Statement
2008
March 31 Balance c/d 135
255 255
April 1 Balance b/d 135

Salman
Extract from Balance Sheet at 31 March 2008

Current Assets
Other Receivables (Accrued Commission Received) 135
PREPAID INCOME
WHAT IS PREPAID INCOME?

• PAYMENT
DATE
PREPAID
• ENDING OF INCOME
• BEGINNING OF BENEFIT
BENEFIT PERIOD
PERIOD
CURRENT
LIABILITY
The payment received before giving the service
EXAMPLE

• 31 March
Accounting Period 2008,
End of
the
Rent Rent Rent financial
Rent
year
Period Period Period Period

• 1
October • 30 March • 30 June
• 1 April
• 1 July 2007, • 31 2008, 2008,
2007,
2007, received Decembe received End of
Salman
rented $ 250 r 2007, $ 250 Rent
started
premises cheque received cheque Period
business
& for rent $ 250 for rent
received cheque
$ 250 for rent
cheque
 LEDGER
31 March 2008, End
Accounting Period of the financial year

1 October 2007, 30 March 2008, 30 June 2008, End

1 April 2007, Salman 1 July 2007, rented 31 December 2007, received $ 250
started business premises & received received $ 250 received $ 250 of Rent Period
cheque for rent cheque for rent
$ 250 cheque cheque for rent

Dr Rent Received Account Cr

Amount of
2008 2007
Rent
March 31 Income 750 July 1 Bank 250
Service Statement
given for Balance c/d 250 Oct 1 Bank 250
the year Dec 31 Bank 250
2008

Mar 30 Bank 250

1,000 1,000
April 1 Balance b/d 250
Prepaid
Income
INCOME STATEMENT (EXTRACT)

Dr Rent Received Account Cr

2008 2007
March 31 Income 750 July 1 Bank 250
Statement

Balance c/d 250 Oct 1 Bank 250

Dec 31 Bank 250
2008

Mar 30 Bank 250

1,000 1,000
April 1 Balance b/d 250

Salman
Extract from Income Statement for the year ended 31 March 2008

Other Income – Rent Received 750

BALANCE SHEET (EXTRACT)

Dr Rent Received Account Cr

2008 2007
March 31 Income 750 July 1 Bank 250
Statement

Balance c/d 250 Oct 1 Bank 250

Dec 31 Bank 250
2008

Mar 30 Bank 250

1,000 1,000
April 1 Balance b/d 250

Salman
Extract from Balance Sheet at 31 March 2008

Current Liabilities
Other Payables (Prepaid Rent Received) 250
DIFFERENCES BETWEEN ACRRUED & PREPAID
INCOME

•ACCRUED • Received payment after giving the

benefit
• Included as the current year's income
INCOME • Current Asset

•PREPAID • Received payment before giving the

benefit
• Excluded from the current year's income
INCOME • Current Liability
THE END