Chapter 6: Accruals and Prepayments

Question 1

The Accruals Basis

The ‘Accruals’ Basis States That:

Answer 1

We Should Match Income & Expenses to The Financial Period They Relate to.
* Irrespective of When Cash is Paid or Received

The ‘Matching’ Concept.

Question 2

Accruals and Prepayments

Where Are Accruals & Prepayments Shown in The Accounts?

Answer 2

In The Balance Sheet.
* Accruals Under Current Liabilities
* Prepayments Under Current Assets

Question 3

Accruals and Prepayments

What Are Some Common Examples of Accruals & Prepayments?

Answer 3

• Accruals - Gas, Electricity
• Prepayments - Rent, Insurance

Question 4

Accruals and Prepayments

In The Following Year of an Accrual or Prepayment, We:

Answer 4

Reverse Out The Expenditure.

Question 5

Accruals and Prepayments

Other Than Accounting, What is The Accruals Basis Equally Important For?

Answer 5

Tax Purposes.

The Basis of Assessment For The Receipt of Rental Income.

Question 6

Accruals and Prepayments

What is Deferred Income?

Answer 6

Income Received in Advance.

Question 7

Accruals and Prepayments

How is Deferred Income Disclosed in The Accounts?

Answer 7

As a Creditor in The Balance Sheet.

Mirrors The Concept of an Accrual.

Question 8

Accruals and Prepayments

An Example of Accrued Income is?

Answer 8

Interest Receivable on a Bank Deposit.