Chapter 6 Flashcards
Define accrual
Expense income that has been incurred or earned during the period that has not yet been invoiced or paid/received
What is an example of the accurals principle?
Setting up control accounts for sales and purchase on credits… These sales and purchases are recorded according to a cruise principle, the sale and purchases recognise when it was made but no cash has been received or paid
Why does the business need to review all expenses at the end of the year?
To ensure a full years expense has been recorded and any invoices received after the year end which relate to the year which is just passed or adjusted for
How will the accountant make period end adjustments for non-recurring expenses?
Using a journal
Define accrued expenses
Expenses that have been incurred during the period but have not yet been invoiced or paid i.e. expenses in arrears
Accrued expenses have a dual effect that needs to be accounted for by
Increasing the relevant expense account in the statement of profit or loss… Recording a current liability called accrued expenses in the statement of financial position for amounts owed at the end of the year
What is the journal to post accrued expenses in the general ledger?
Deborah expense account SPL, credit accrued expenses SOFP
Give an example of a suitable narrative for a journal to post accrued expenses
Being an adjustment to accrue the XX expense for the year ended XX
How do you record invoices page in the year by?
Deborah expenses credit bank
How do you record accrued expenses by?
Debbie expenses credit accrued expenses
If you are reversing accrue expenses, what would the double entry be?
Debit accrued expense credit expenses
What is the journal to reverse the accrue expenses in the general ledger?
Debit accrued expenses SOFP, credit expense account SPL
Define prepaid expenses
These arise when expenses are paid for but relates to the following accounting period i.e. expenses in advance
What is the jewel effect for prepaid expenses?
Decrease the relevant expense account in the statement of profit and loss and record a current asset called prepaid expenses in the statement of financial position as effectively the next account period owes the prepaid amount to the current accounting period
What is the journal for prepaid expenses?
Debit prepaid expenses SOFP and credit expense account SPL
Pre-payments of prepaid expenses are an asset to the business and as shown in the statement of financial position within
The current asset section
What is prepaid income?
Income that has been received but it relates to the following ac counting period i.e. income in advance (deferred income
What is the journal entry for prepaid income?
Debit income account SPL and credit prepaid income SOFP
What is the jewel effect for prepaid income?
Decrease the relevant income account in the statement of profit and loss as cash has been received in the current year but the income relates to next year, record a current liability called prepaid income in the statement of financial position as the business has not earned the income yet, so owes it back
What is the journal for reversal of prepaid income?
Debit prepaid income SOFP and credit income account SPL
