Accruals

1
Accruals Prepayments
2
Example
The rent for the office is 6,000 per annum The
business pays 5,000 in the year and therefore
owes 1,000 for rent. (Accrued expense) Rent
used up 6,000 Rent paid for
5,000 __________________________________________
___________ The business pays 6,500 this year
for rent. This figure includes 500 paid in
advance for the following year. (Pre-paid
expense) Rent used up 6,000 Rent paid for
6,500
3
Accrued expense
Assume that rent of 4,000 per year is payable at
the end of every three months.
Amount Rent due Rent paid
1000 31 March 2011 31 March 2011
1000 30 June 2011 2 July 2011
1000 30 September 2011 4 October 2011
1000 31 December 2011 5 January 2012
4
Accrued expense
Dr
Cr
Rent a/c
March31 2011 Cash 1,000 July2 2011 Cash
1,000 Oct4 2011 Cash 1,000
The rent for the last quarter was paid in 2012 so
will appear in the 2012 books
The expense for 2011 is 4,000. as it is an
expense it is charged to the profit loss a/c.
However the two accounts do NOT balance
5
Accrued expense
Dr
Cr
Rent a/c
March31 2011 Cash 1,000 July2 2011 Cash
1,000 Oct4 2011 Cash 1,000 Dec31 2011
Accrued c/d 1000
To rectify this, the 1,000 that is owed must be
carried down to 2012
6
Prepaid expenses
Insurance for a business is 840 per annum. The
business pays at a rate of 210 every three months
Amount Insurance due Insurance paid
210 31 March 2011 210 28 February 2011
210 210 30 June 2011 30 September 2011 420 31 August 2011
210 31 December 2011 420 18 November 2011
7
Prepaid expenses
Due Paid 2011 Jan Jan Feb Feb (210) Mar
(210) Mar Apr Apr May May Jun
(210) Jun Jul Jul Aug Aug (420) Sep
(210) Sep Oct Oct Nov Nov (420) Dec
(210) Dec 2012 Jan Jan Feb Feb Mar Mar Apr Apr

Dr
Cr
Insurance a/c
Feb28 2011 Bank 420 Aug31 2011 Bank
420 Nov18 2011 Bank 420
Dec31 2011 PL 840
The last payment is not just for 2011, it can be
split as 210 for the last three months of 2011
and the first three months of 2012.
8
Prepaid expenses
Dr
Cr
Insurance a/c
Feb28 2011 Bank 420 Aug31 2011 Bank
420 Nov18 2011 Bank 420 Jan01
2012 PrePaid b/d 210
Dec31 2011 PL 840 Dec31 2012 PrePaid c/d
210
If 840 is posted to the debit of PL at 31
December 2011, the insurance a/c will still have
a debit of 210. it is a benefit paid for but not
used up. The asset needs carrying forward to
2012