Accruals and Prepayments | IGCSE and As Level PPT | Krishna Agarwal
- 2. Accruals and prepayments Before we prepare the final accounts of a business it is often necessary to adjust the figures in the trial balance because:
- 3. We may still owe money for items we have used in the financial year. We may have paid for some items in advance. We may be owed revenue. We may have paid revenue in advance.
- 4. What are accruals? An accrual is an estimate of money that is owed, but which has not yet been paid.
- 5. What are prepayments? A prepayment is a payment made in advance of the current period.
- 6. A business with an accounting year end of 31 December. On 1 January 2006 electricity owing amounted to £400. The business paid electricity of £3,000 during the year. There is £250 owing for electricity at 31 December 2006. Example of an accrued expense
- 7. Electricity account Dr Electricity account Cr
- 8. Electricity account Dr Electricity account Cr Bal b/d 400
- 9. Electricity account Dr Electricity account Cr Bank 3,000 Bal b/d 400
- 10. Electricity account Dr Electricity account Cr Bank 3,000 Bal b/d 400 Bal c/d 250
- 11. Electricity account Dr Electricity account Cr Bank 3,000 Bal b/d 400 Bal c/d 250 Profit and loss 2,850 3,250 3,250
- 12. Profit and loss account for the year ended 31 December 2006 (extract) Less expenses Electricity 2,850 Balance sheet as at 31 December 2006 (extract) Current liabilities Electricity accrued 250
- 13. A business has an accounting year end of 31 December. On 1 January 2006 insurance of £300 had been paid in advance. During 2006 the business has paid £2,000 for insurance. However, this includes a pre-payment for £100 for the year beginning 1 January 2007. Example of a prepaid expense
- 14. Insurance account Dr Insurance account Cr
- 15. Insurance account Dr Insurance account Cr Bal b/d 300
- 16. Insurance account Dr Insurance account Cr Bal b/d 300 Bank 2,000
- 17. Insurance account Dr Insurance account Cr Bal b/d 300 Bank 2,000 Bal c/d 100
- 18. Insurance account Dr Insurance account Cr Bal b/d 300 Profit and loss 2,200 Bank 2,000 Bal c/d 100 2,300 2,300
- 19. Profit and loss account for the year ended 31 December 2006 (extract) Less expenses Insurance 2,200 Balance sheet as at 31 December 2006 (extract) Current assets Insurance prepaid 100
- 20. On 1 January 2006 commission receivable is owing of £400. During the year the business receives commission of £6,500. However, £500 of commission is still owed to the business as at 31 December 2006. Example of an accrued revenue
- 21. Commission received Dr Commission received Cr
- 22. Commission received Dr Commission received Cr Bal b/d 400
- 23. Commission received Dr Commission received Cr Bal b/d 400 Bank 6,500
- 24. Commission received Dr Commission received Cr Bal b/d 400 (1)Bank 6,500 (1)Bal c/d 500
- 25. Commission received Dr Commission received Cr Bal b/d 400 (1)Bank 6,500 Profit and Loss 6,600 (1)Bal c/d 500 7,000 7,000
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