Adjustments for Accrued & Prepaid Expenses

Adjustments for accrued & prepaid expenses

Adjustments for accrued & prepaid expenses

How do I record accruals and prepayments of expenses on the financial statements?

• Calculate the total amount that is due for the current year

  • See the revision note Accrued & Prepaid Expenses for more information

• Accrued expenses are amounts which remain unpaid at the end of the accounting period

• Prepaid expenses are amounts that are paid in the current accounting period but relate to a future accounting period

• The total amount due for the year is the value included on the income statement

  • If an expense has an accrual then add that value to the balance of the account

  • If an expense has a prepayment then subtract that value from the balance of the account

• The amounts of the accruals or prepayments are stated on the statement of financial position

  • The amount of an expense that is accrued is treated as a current liability

    • Label it as other payables

  • The amount of an expense that is prepaid is treated as a current asset

    • Label it as other receivables