1 / 15

Accruals & Prepayments

Learn about accruals and prepayments in accounting - how expenses are recognized and managed, including interactive examples. Explore the principles of accruals and prepayments, their impact on financial statements, and period-end adjustments. Gain insight into deferred and accrued income as part of financial management.

velazquez
Download Presentation

Accruals & Prepayments

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Accruals & Prepayments Mark Fielding-Pritchard mefielding.com

  2. Principle • Sally moves to New York from London. She goes to work by metro. On 1 January 2016 she buys a one year metro/subway/underground ticket paying in cash $1200. The ticket allows unlimited travel all year, 2016, on the metro. • When her mother asks how much does it cost to travel on the metro does Sally answer • It costs $1200 on 1 January but it is free the rest of the year, or • Does she answer $100 a month? • 1) Is the cash basis, 2) is the accruals. Accruals basis recognizes expenses when the arise, not when they are incurred mefielding.com

  3. Accruals • An accrual is an expense we have incurred, but where we have not yet received the invoice ie mobile phone You talk today for 2 hours on 31/12 on your mobile. The bill will come in 1 week. How much is the month end accrual if you pay 10c a minute? Accruals are shown as a current liability in the BS mefielding.com

  4. Interactive Question 1 P234 mefielding.com

  5. Prepayment • A prepayment is an expense we have not yet incurred, but where we have paid in advance You pay in advance your mobile. You pay on 31/12 $100 for January Remember during the year we cash account. Accruals and prepayments are a period end adjustment. When you pay your phone it will, at that time debit the expense account. Prepayments are shown as a current asset in the BS mefielding.com

  6. Reversals- Accruals See Interactive Q1.1 P234 Reversal 1/1/03 Dr Accrual 327.68 Cr Expense 327.68 mefielding.com

  7. Assume payments made in advance !!! Reversals- Prepayments See Interactive Q1.1 P234 Reversal 1/1/03 Dr Expense 39.09 Cr P’pay 39.09 mefielding.com

  8. Interactive Q2 P238 mefielding.com

  9. Interactive Q3 P239 mefielding.com

  10. Interactive Q4 P241 mefielding.com

  11. Interactive Q4 P241 mefielding.com

  12. Interactive Q4 mefielding.com

  13. Interactive Q5 P241 mefielding.com

  14. Income- Deferred & Accrued • Deferred Income- payment received in advance for work we haven’t done yet • Accrued income- income due to us but for which no invoice has been raised, bank interest mefielding.com

  15. Worked Example P242 mefielding.com

More Related