Accruals and Prepayments (Week 8)

Question 1

Accruals

Answer 1

Accrued Expenses –> Liability (inc exp)
Accrued Revenue –> Asset (inc rev)

Question 2

Prepayments

Answer 2

Prepaid Expenses –> Asset (dec exp)
Prepaid Revenue –> Liability (dec)

Question 3

Accrued Income (profit)

Answer 3

Accrued Income –> Asset in SoFP

To record the transaction:
Work out the amount income that has been earned, but not yet received by the end of the accounting period.
Dr Accrued Income (SoFP)
Cr Revenue (IS)

When the cash is subsequently received the following transactions are made:
Dr Cash (SoFP)
Cr Accrued Incomed (SoFP)

Question 4

Deferred Income (profit)

Answer 4

Deferred Income –> Liability in SoFP

To record the transaction:
Dr Cash (SoFP)
Cr Deferred Income (SoFP)

When the work is subsequently completed:
Dr Deferred Income (SoFP)
Cr Revenue (IS)