Chapter 11: Other payables and other receivables
1. Year-end adjustments are adjustments to the accounting records in order to present
a more accurate view of the profit or loss of the business and the financial position
of the business.
2. The expenses for an accounting period must be matched against the income of that
particular period. (Matching Principle)
3. An accrual is an amount due in an accounting period which remains unpaid at the
end of that period.
4. A prepayment is an amount that has been paid or received in one accounting period
which relates to a future period.
5. Accrued expense
It is an expense relating to a particular accounting period which is unpaid at the end
of that period.
The entries for accrued expense:
During the year:- debit the expense account and credit the cash book with the
amount paid.
At the year-end: - debit the expense account with any amount due but unpaid and
carry down as a credit balance.
- credit the expense account and debit the income statement with
the difference on the expense account (this represents the
expense for the year).
- include the balance on the expense account as a current liability
(other payables) in the statement of financial position.
6. Prepaid expense
It is an expense paid during the financial year which relates to a future accounting
period.
The entries for prepaid expense:
During the year:- debit the expense account and credit the cash book with the
amount paid.
At the year-end: - credit the expense account with any amount paid in advance and
carry down as a debit balance.
- credit the expense account and debit the income statement with
the difference on the expense account (this represents the
expense for the year).
- include the balance on the expense account as a current asset
(other receivables) in the statement of financial position.
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7. Accrued income
It is an income relating to a particular accounting period which has not been received
at the end of that period.
The entries for accrued income:
During the year: - credit the income account and debit the cash book with the
amount received.
At the year-end: - credit the income account with any amount due but not received
and carry down as a debit balance.
- debit the income account and credit the income statement with
the difference on the income account (this represents the income
for the year).
- include the balance on the income account as a current asset
(income accrued) in the statement of financial position.
8. Prepaid income
It is an income received during the financial year which relates to a future accounting
period.
The entries for prepaid income:
During the year: - credit the income account and debit the cash book with the
amount received.
At the year-end: - debit the income account with any amount received in advance
and carry down as a credit balance.
- debit the income account and credit the income statement with
the difference on the income account (this represents the income
for the year).
- include the balance on the income account as a current liability
(income prepaid) in the statement of financial position.
Ms Nelly | Chapter 11 : Other Payables and Other Receivables 2
