6. Accruals, prepayments, advances and arrears in the trial balance

Question 1

Explain the process of adjusting the initial trial balance to account for accruals and prepayments. (6)

Answer 1

1. Calculate the amounts of the accrued and prepaid expenses, and the deferred or accrued income, as usual.
2. Prepare the period end journals as usual.
3. Enter these journals in the adjustments columns against the initial trial balance.
4. Add across (cross cast) to prepare the final trial balance.
5. Enter the closing journals in the ledger accounts as usual.
6. Prepare and enter the opening journals to reverse the accruals and prepayments.