Adjustments 1-Accruals and Prepayments

Accounting unit 3-Adjustements part1 Accruals and prepayments a short summarised key points to help you remeber the key points

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  • Created by: KHAN
  • Created on: 27-05-08 15:17

Accruals and Prepayments Eazy Revision

Accruals:

Which Concept?

Accruals or Matching concept,meaning to match expenditure to the dates to which they relate

What is an Accrual?

An accrual is an OUTSTANDING payment which has to be paid on a expense(e.g J Blows buys £100 car fuel and pays £80 her accrual is £20 because £20 is outstanding)£80+£20=100.

*In the exam they will ask you to work out the adjustment of the accrual to do this you add on the amount they say it has been acrrued by for example: "Lissie boughtfuel which is accrued by £300".You look in the trial balance for Fuel and the amount e.g £10 then you add on £300.

GO TO PAGE 2 TO FIND OUT WHAT WE DO WITH AN ACCRUAL ON THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET

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ACRRUALS PART 2

Treatment on profit and loss Account:

EXAMPLE: IN TRIAL BALANCE FUEL IS £300

QUESTION SAYS: FUEL IS ACCRUED BY £200

YOU DO: £300+£200=£500 THEN PUT £500 IN PROFIT AND LOSS ACCOUNT FOR NEW TOTAL ON FUEL

Profit and loss extract

Expenses

Fuel(300+200) £500

Treatment on Balance sheet

EXAMPLE: IN TRIAL BALANCE FUEL IS £300

QUESTION SAYS: FUEL IS ACCRUED BY £200

YOU DO: £300+£200=£500.You put the amount that is has been accrued by £200 in the current liabilities section of the balance sheet

Balance sheet extract:

Current Liabilities

Accrued Fuel £200

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PART 3

Treatment on Balance sheet

EXAMPLE: IN TRIAL BALANCE FUEL IS £300

QUESTION SAYS: FUEL IS ACCRUED BY £200

YOU DO: £300+£200=£500.You put the amount that is has been accrued by £200 in the current liabilities section of the balance sheet

Balance sheet extract:

Current Liabilities

Accrued Fuel £200

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PREPAYMENTS

PREPAYMENTS

What is it? A prepayment is when a business pay a bill before it is due.For example a gas bill due in january 2007 is paid in november 2006.

EXAMS:***REMEMBER KEY FACT***:

ACCRUAL= + ON TO THE EXISTING TOTAL ON TRIAL BALANCE

PREPAYMENT = - ON TO THE EXISTING TOTAL ON TRIAL BALANCE

READ ON FOR MORE.......

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PREPAYMENTS PART 2

PREPAYMENTS ON PROFIT AND LOSS ACCOUNT:

EXAMPLE:j bLOBBS HAS MADE A PREPAYMENT OF £200 ON THE GAS BILL

LOOK IN TRIAL BALANCE FOR GAS BILL AND THE AMOUNT WHICH E.G IS £600 THEN YOU DO 600 MINUS 200=400 AND PUT IN 400 IN THE PROFIT AND LOSS ACCOUNT

Profit and loss extract

expenses

Gas bill(600-200) £400

Balance sheet:

Current assets

Prepaid gas £200

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