Accruals and Prepayments

Question 1

What is an accrual?

Answer 1

A liability for expenses used even though they have not been paid for

Question 2

Double entry for accruals

Answer 2

Dr expense (P/L) Cr accruals SPL

Question 3

What is a prepayment?

Answer 3

An asset relating to expenses that have already been paid but not used

Question 4

Double entry for a prepayment

Answer 4

Dr prepayment (SFP) Cr expense (P/L)

Question 5

Steps for new period for accruals and prepayments

Answer 5

Reverse opening accrual/prepayment
Post cash payments to relevant expense ledger
Calculate and post closing accruals/prepayments

Question 6

Double entry for reversing opening/ post closing accruals

Answer 6

Dr accruals Cr expense / Dr expense Cr accruals

Question 7

Double entry for reversing opening/ post closing prepayments

Answer 7

Dr expense Cr prepayment / Dr prepayments Cr expense

Question 8

What is accrued income?

Answer 8

Receipt of income in arrears at the year end

Question 9

Double entry for accrued income

Answer 9

Dr accrued income Cr revenue/other income

Question 10

What is deferred income?

Answer 10

Income received in advance of delivering goods or services

Question 11

Double entry for deferred income

Answer 11

Dr revenue/ other income Cr deferred income

Question 12

Steps for accrued and deferred income

Answer 12

Reverse opening accrued/deferred income
Post cash received in normal way
Calculate and post closing accrued/deferred income

Question 13

How to calculate receivable figure for SPL?

Answer 13

opening deferred income + cash received + closing accrued income - opening accrued income - closing deferred income