Accruals and prepayments of expenses Flashcards
(6 cards)
1
Q
What is an accrual of an expense?
A
An expense that has been incurred, but not yet paid for at the end of an accounting period.
2
Q
How does an accrual of expense impact the income statement?
A
The accrual is added to the expense that’s already there.
3
Q
How does an accrual of expense impact the SOFP?
A
The accrual is shown as a current liability and labelled ‘other payables’.
4
Q
What is a prepayment of an expense?
A
An expense that has been paid in advance.
5
Q
How does a prepayment of expense impact the income statement?
A
The prepayment is deducted from the expense that’s already there.
6
Q
How does a prepayment of expense impact the SOFP?
A
The prepayment is shown as a current asset and labelled ‘other receivables’.
