expenses account
DEFINITION
Accrual : income or expenses that have
occurred during the period but are unpaid at
the year end
Prepayments : income or expenses that are paid
for in advance of the period they relate to
PROFORMA
income account
ACCRUALS
Prepaid expenses are not included in expenses
in the period they are paid and are asset at the
year end
dr income (SOPL)
cr deffered income (SOFP)
deffered (prepaid) income is not included as
income in the period money is received and is a
liability at the year end
dr. expenses (SOPL)
cr. accrued expenses (SOFP)
Accrued income is included in income for the
period and is an asset at the year end
dr Accrued income (SOFP)
cr income (SOPL)
Although paid
ACCRUALS AND
PREPAYMENTS
dr prepaid expenses (SOFP)
cr expenses (SOPL)
Accrued expenses are include in expenses for
the period and are a liability at the year end
under the accrual basis, revenue and costs are
both:
Although paid in advance
accrued (recognised as earned or incurred)
recorded in the financial statements of the
period they relate
PREPAYMENTS
ACCRUAL CONCEPT
matching concept :
expenses incurred in generating revenue to be
matched against in the revenue in determining
profit or loss for the period
receivables and payables
accrual concept is applied to :
business expenses and income