Starter activity: think about it!

• Suggest why adjustment to the accounts for the current year may be
necessary.

On 1 September a hotel received an advance payment of $ 250 from a

customer to book a room for two nights from 20 March next year.

( the accounting year runs from 1 Jan to 31 Dec)

 Lesson objectives
• By the end of the lesson the learner should be able to :

1. Prepare ledger accounts and journal entries to record

accrued and prepaid incomes.
Prepaid income

• A prepaid income received by a business will not contribute to profit

until that income has been earned from the provision of goods and
services to the customer.

• Any income that has been received but not earned by the end of the
accounting year should not be included in the profit for the year.
 Rent receivable account

2018 2018
Jan 1 balance b/d 75 dec 31

BANK/CASH 260
Dec 31 Income statement 235

Balance c/d 50

310

2019 310
Jan 1 Balance b/d 50