4. Accruals and Prepayments

Question 1

What is a Prepayment?

Answer 1

A payment in advance.

Question 2

What is an accrual (accrued expense)?

Answer 2

An amount owing for which the company has not yet received an invoice.

Question 3

What is step 1 when entering prepayments?

Answer 3

Reverse prepayments brought forward:
- Debit expense account
- Credit prepayments account

Question 4

What is step 2 when entering prepayments?

Answer 4

Enter any payments during the period:
- Debit expense account
- Credit cash account

Question 5

What is step 3 when entering prepayments?

Answer 5

Enter any prepayments at the end of the period:
- Debit prepayments account
- Credit expense account

Question 6

What is step 4 when entering prepayments?

Answer 6

Close-off accounts:
- Debit SoPL
- Credit expense account

Question 7

What is step 1 when entering accruals?

Answer 7

Reverse any accruals brought forward:
- Debit accruals account
- Credit expense account

Question 8

What is step 2 when entering accruals?

Answer 8

Enter any payments during the period:
- Debit expense account
- Credit cash account

Question 9

What is step 3 when entering accruals?

Answer 9

Enter any accruals at the end of the period:
- Debit expense account
- Credit accruals account

Question 10

What is step 4 when entering accruals?

Answer 10

Close-off the accounts:
- Debit SoPL
- Credit expense account