PRINCIPLES OF ACCOUNTS

ACCRUALS & PREPAYMENTS

LEARNING OBJECTIVES:

a) Know how an accrual arise

b) Double enter accruals in the Ledger
c) Know how a prepayment arise
d) Double enter prepayments in the Ledger
______________________________________________________________________________
1. ACCRUALS/ACCRUED EXPENSES: (owing/arrears/outstanding/due)

These are expenses which are incurred during the period but is still being owed at the end of the
period.
• All Expenses are debited in the general ledger.
• Accrued expenses must be added to current expenses before being subtracted from Gross
profit in the Income Statement or Trading & Profit & Loss a/c.
• It is also listed under current liabilities in the Balance Sheet.

HOW TO DOUBLE ENTER IN LEDGER:

EXAMPLE: Rent for year $12000, $3000 is payable every 3 months.

1. $3000 due 31 march, 2017 paid on 31 March 2017
2. $3000 due 30 June, 2017 paid on 02 July 2017
3. $3000 due 30 Sept, 2017 paid on 04 Oct 2017
4. $3000 due 31 Dec, 2017 paid on 05 Jan, 2018

RENT EXPENSE A/C

DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Mar 31 Bank 3000 Dec 31 Profit & Loss 12000
Jul 02 Bank 3000
Oct 04 Bank 3000
Dec 31 Accrued c/d 3000
12000 12000
2018
Jan 01 Accrued b/d 3000
 2. PREPAYMENTS/PREPAID EXPENSES: (In Advance)

These are expenses that are paid in advance for the following period.
• Prepaid expenses are subtracted from current expenses before being subtracted from
Gross Profit in the Income Statement or Trading & Profit & Loss a/c
• Prepaid expenses are listed under current assets in the Balance Sheet.

HOW TO DOUBLE ENTER IN LEDGER:

EXAMPLE: Insurance for a company is $840 for the year, $210 is payable every 3 months
1. $210 due 31 march 2017 paid 28 Feb, 2017
2. $210 due 30 June 2017 --------
3. $210 due 30 Sept 2017 paid $420 31 Aug, 2017
4. $210 due 31 Dec 2017 paid $420 18 Nov, 2017

INSURANCE EXPENSES A/C

DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Feb 28 Bank 210 Dec 31 Profit & Loss 840
Aug 31 Bank 420 Dec 31 Prepaid c/d 210
Nov 18 Bank 420
1050 1050
2018
Jan 01 Prepaid b/d 210

Example 28.1 page 269

RENT EXPENSE A/C

DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Nov 30 Bank 3300 Dec 31 Profit & Loss 3600
Dec 31 Accrued c/d 300
3600 3600
2018
Jan 01 Accrued b/d 300
 TELEPHONE EXPENSES A/C
DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Dec 31 Bank 589 Dec 31 Profit & Loss 696
Dec 31 Accrued c/d 107
696 696
2018
Jan 01 Accrued b/d 107

WAGES EXPENSES A/C

DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Dec 31 Bank 14690 Dec 31 Profit & Loss 15020
Dec 31 Accrued c/d 330
15020 15020
2018
Jan 01 Accrued b/d 330

D)

RATES EXPENSES A/C

DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Dec 31 Bank 5250 Dec 31 Profit & Loss 4200
Dec 31 Prepaid c/d 1050
5250 5250
2018
Jan 01 Prepaid b/d 1050
 INSURANCE EXPENSE A/C
DATE DETAILS AMT. $ DATE DETAILS AMT.
$
2017 2017
Dec 31 Bank 1200 Dec 31 Profit & Loss 800
Dec 31 Prepaid c/d 400
1200 1200
2018
Jan 01 Prepaid b/d 400