Lec 6 - accruals and prepayment Flashcards
difference between payable and an accrual
payable got an invoice so we know how much we owe and to whom - CREDITORS
+ payable is a CL
accrual we don’t have an invoice so not exactly sure how much we own and to whom
+ accrual is CL
Cannot open a payable
can only open accrual item in CL
why are accruals recorded
to ensure expenses incurred in a period are taken into account in calculation of profit in period where it occured #matchingprinciple
What are the two notes we make when we record an accrual
expense increase in IS by x month bill amount
- expense in IS
Accruals increase by x month bill amount
- current liablity in BS
how do we work out the accrual
establish waht finacial year was
see what period the sum they gave you span across
divide bill by month amount
then multiply y the number of relevant months in the span of that time period
increase expense by x - expense in is
increase accrual - cl in bs
what should you put as the expense in IS from accrual
total cost including accrual
what should you put as accruals in BS
the specific amount for the time period requested
PREPAYMENT IS OPPOSITE OF
ACCRUAL
WHAT IS PREPAYMENT
When business pays some of bills in advance i.e g/s haven’t been received yet
why do we record prepayment
Ensure expense taken into account in calc of profit in period been incurred
how do we note prepayment
expenses - decrease by bill amount
this is an expense in IS
prepayment - increases by bill amount
this is a current asset in BS
How do we remember prepayment is a CA
opposite of accrual which is a curent liablity
if going from 1 jan - 31 of month how do we w/o months
count jan to month
if we going from 31 feb - 31 marhc
write it out 1 by 1
