10. Accruals and Prepayments

Question 1

Accruals:

1. What is the accruals concept?
2. What is an accrual?
3. How do we post an accrual?
4. Where and how is an accrual shown in the financial statements?

Answer 1

1. The accruals concept is the idea that all income and expenses for that year are shown regardless of whether cash has been received/paid.
2. An accrual is an expense incurred for that year end but not currently paid.
3. Dr expense, Cr accruals
4. An accrual is shown as a liability in the statement of financial position and an expense in the statement of profit or loss.

Question 2

Prepayments:

1. What is a prepayment?
2. How do we post a prepayment?
3. Where and how is a prepayment shown in the financial statements?

Answer 2

1. A prepayment is a cost incurred within the year but not relevant until the following year.
2. Dr prepayments, Cr expense
3. A prepayment is shown as a asset on the statement of financial position..

Question 3

Accrued income:

1. What is accrued income?
2. How do we post accrued income?
3. Where and how is accrued income shown in the financial statements?

Answer 3

1. Income that has been earnt but not yet received.
2. Dr accrued income, Cr income
3. Accrued income is shown as a asset on the statement of financial position.

Question 4

Prepaid income:

1. What is prepaid income?
2. How do we post prepaid income?
3. Where and how is prepaid income shown in the financial statements?

Answer 4

1. Income received in the period relating to the following period.
2. Dr income, Cr prepaid income
3. Prepaid income is shown as a liability in the statement of financial position.