Chapter 5 - Accrurals And Prepayments Flashcards
What is an Accrual ?
An accrual is an amount due or the calculation of an amount due in an accounting period which is unpaid at the end of that period
Before an accrual of an expense is listed in the statement of profit or loss it needs to be added to……..?
The expense account
(E.g insurance account or electricity account)
accruals of expenses are shown as a ________ in the year end statement of financial position
Liability
Why is a journal entry made at the end of the financial year for accruals of expenses ?
A journal entry is made to give the bookkeeper authority to record the transactions in double entry accounts
When a business makes an accrual of an expense the two accounts involved would be the relevant expense account and the accrual account.
Which account will be debited and which will be credited ?
Relevant expense account - Debit
Accrual account - Credit
At the beginning of a new financial year what needs to happen to the expenses in the accruals account ?
They need to go back into their relevant expense account
E.g telephone bill in the accruals account goes back into the telephone bill account.
What is a prepayment ?
A payment made in advance or the calculation of an amount paid in advance
Before a prepayment of an expense is listed in the statement of profit or loss it needs to be deducted from the………?
Expense account
Why does the prepayment need to be deducted from the expense account before it is listed in the statement of profit or loss ?
Because the statement of profit or loss shows the costs incurred for the year and not the amount paid, and prepayments could relate to payments outside the time period of the profit or loss statement
Why is a journal entry made at the end of the financial year for prepayments of expenses ?
A journal entry is made to give the bookkeeper authority to record the transactions in double entry accounts
When an accountant records a prepayment of an expense the two accounts involved would be the relevant expense account and the prepayment account.
Which account will be debited and which will be credited ?
Prepayments account - Debit
Rent paid - Credit
Before an accrual of income can be listed in the statement of profit or loss it needs to be added to the……..?
Trial balance
accruals of income are shown as a ________ in the year end statement of financial position
Asset
Before a prepayment of income is listed in the statement of profit or loss it needs to be deducted from the………?
Income amount in the trial balance
prepayments of expenses are shown as an ________ in the year end statement of financial position
Asset
