Accounting for Accruals, prepayments etc Flashcards
Accruals concept =
Accruals concept = match income with associated expenditure.
Account for transactions when they are incurred, not when cash is paid/received.
Adjustments to financial statements:
‘In arrears’ =
‘In arrears’ = item paid at the end of the period to which the payment relates.
Adjustments to financial statements:
‘In advance’ =
‘In advance’ = item paid at the beginning of the period to which the payment relates.
Accruals, “accrued expenses” =
Accruals = expenses charged against the profit for a particular period even though they haven’t yet been paid for.
Effect on financial statements of accruals
- Increase expenses in statement of profit/loss
- Increase current liabilities (accruals) in statement of financial position.
Prepayments, “prepaid expenses” =
Prepayments = expenses paid for in one period but not charged against profit until a later period, to which they relate.
Effect on financial statements of prepayments.
- Decrease expenses in statement of profit/loss
- Increase current assets in statement of financial position
Deferred income =
Deferred income = cash may be received in one period even though the actual sale happens in the subsequent period.
eg, deposit on an item delivered in the future eg, cars.
Effect on financial statements of deferred income
- Decrease income in statement of profit/loss
- Increase current liabilities in statement of financial position.
Accrued income =
Accrued income = cash may be received in one period in relation to an event in a previous period.
eg, bank interest income earned, not fully received until after year-end date.
Effects on financial statements of accrued income
- Increase income in statement of profit/loss
- Increase current assets in statement of financial position.
Posting of invoices =
Posting of invoices = a sale/purchase made on credit for which the invoice has been raised/received but hasn’t yet been recorded in the accounts.
