Accruals ( And Prepayments ) - 30% Flashcards
What is an accrued expense ?
Expenses incurred by the business during the accounting period but are unpaid.
They are related to expenses in arrears
What is the double entry for adjustments for accrued expenses
DEBIT - ( Relevant) Expenses ( SPL)
CREDIT - Accruals ( SOPL)
What is a prepaid expense ?
When a business has paid for an expense but the item has not been used at the period end
They relate to expenses paid for in advance
What is the double entry for adjustments to prepaid expenses
DEBIT Prepayments
CREDIT Expenses
What is the double entry for reversing an accrued expense
DEBIT Accruals (SOFP )
CREDIT Expense (SLP )
What is the double entry for reversing a pre paid expense
DEBIT Expenses ( SPL)
CREDIT Prepayments ( SOFP )
What is an accrued income
Income that is received in arrears or in advance.
This is when income has been earned during the accounting period ( and therefore should be shown in income ) but has not been invoiced or received by the period end
What is the double entry for adjustments to accrued income
DEBIT Accrued income ( SOFP )
CREDIT Income ( SPL )
What is pre paid income ?
When income is received in advance of it being earned. Also known as deferred income.
What is the double entry for the adjustment to prepaid income
DEBIT income ( SPL)
CREDIT Prepaid Income ( SOFP )
What needs to happen at the beginning of the next account period with accrued expenses and pre paid expenses ?
They need to be reversed at the beginning of the next period
What happeneds to the expense account in the statement of profit or loss?
This will result in a decrease in the statement of profit or loss
What happeneds to accrued income in the statement of profit or loss
Accrued income increases income in the statement of profit or loss
What’s happends to prepaid income to the statement of profit or loss ?
Pre paid income decreases income in the statement of profit or loss
