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  • Adjusting Entries 3 - Accruals and Prepayments

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    fayola Agaja
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    Prepayments refer to portions of revenue or expenses paid in advance. For example, if insurance for 2 years is paid upfront for $3200, the expense for the first year is $1600. Prepayments must be subtracted from the related expense account to accurately report the expense for the period. Similarly, prepaid rent received for a future period must be subtracted from rent revenue to accurately report the revenue earned for the current period. Adjusting accounts for prepayments and accruals ensures expenses and revenues are reported in the correct period.

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    CSEC POA Fifth Form

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    Prepayments refer to portions of revenue or expenses paid in advance. For example, if insurance for 2 years is paid upfront for $3200, the expense for the first year is $1600. Prepayments must be subtracted from the related expense account to accurately report the expense for the period. Similarly, prepaid rent received for a future period must be subtracted from rent revenue to accurately report the revenue earned for the current period. Adjusting accounts for prepayments and accruals ensures expenses and revenues are reported in the correct period.

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    6 views1 page

    Adjusting Entries 3 - Accruals and Prepayments

    Uploaded by

    fayola Agaja
    Prepayments refer to portions of revenue or expenses paid in advance. For example, if insurance for 2 years is paid upfront for $3200, the expense for the first year is $1600. Prepayments must be subtracted from the related expense account to accurately report the expense for the period. Similarly, prepaid rent received for a future period must be subtracted from rent revenue to accurately report the revenue earned for the current period. Adjusting accounts for prepayments and accruals ensures expenses and revenues are reported in the correct period.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Accounting for Accruals and Prepayments

    Prepayments refer to portions of a revenue or


    expense which have been received or paid in advance.
    Format with Adjustments If a companies buys a two year insurance policy for
    $3200, they have prepaid for insurance coverage. This
    Gross Profit xxx means that actual insurance expense for one year is
    Additional Income just $1600 ($3200/2). Prepayments must be
    Rent revenue($6500 - $500) $6000 subtracted. If the insurance expense is left as $3200,
    xxx we would be overstating our expenses and understate
    Expenses profits.
    Depreciation: Motor Van xxx
    Increase in the provision for bad debts xxx
    Salaries xxx
    Add salaries accrued + xxx
    Prepaid revenues must also be subtracted. A tenant
    xxx
    may pay rent in advance to secure the property in the
    Insurance $3200
    following month. If $6500 has been received in rent
    Less insurance prepaid ($1600)
    revenue but it includes $500 for the next year. This
    $1600
    means the actual revenue amount is only $6000. The
    Total Expenses (xxx)
    tenant has paid for another month in advance and the
    Net Profit Before Tax xxx
    account must be adjusted. To adjust, we subtract the
    Corporation Tax (xxx)
    Net Profit After Tax xxx
    amount prepaid to record the revenue accurately.

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