Chapter 10 - Accruals and Prepayments Flashcards
What is an accrual?
Arises where the expense of the business entity for the current period have been incurred but not yet paid at the end of the year
what is the double entry for accounting for an accrual?
Dr expense account (SPL)
Cr Accrual account (SFP)
Accounting for an expense accrual does what to the profit?
Reduces profit
What is a prepayment?
A prepayment arises when expenses of the business entity, relating to the following year, have been paid in advance prior to the year end.
What is the double entry for a prepayment?
Dr Prepayment account (SOFP)
Cr expense account (SOPL)
Accounting for a prepaid expense does what to the profit?
Increases profit for the year
When does accrued income arise?
When the income has been earned in the accounting period but the cash has not yet been received
How is accrued income accounted for?
Dr accrued income account (sofp)
Cr income account (spl)
Accounting for accrued income does what to the profit?
Increases profit
What is prepaid income?
Arises when income has been received during the current accounting period which relates to the next accounting period
How do we account for prepaid income?
Dr Income account (SOPL)
Cr prepaid income (SOPF)
Accounting for prepaid income does what to the profit?
Reduces profit
What is the accrual concept?
Transactions should be reflected in the financial statements for the period in which they occur
