Adjustments for Accrued & Prepaid Income

Exam code: 7707

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

Calculate the total amount that is due for the current year
- See the revision note Accrued & Prepaid Income for more information
Accrued income is an amount which has not yet been received at the end of the accounting period
Prepaid income is an amount that is received in the current accounting period but relates to a future accounting period
The total amount due for the year is the value included on the income statement
- If an income has an accrual then add that value to the balance of the account
- If an income 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 income that is accrued is treated as a current asset
  - Label it as other receivables
- The amount of an income that is prepaid is treated as a current liability
  - Label it as other payables

Worked example

Savio is a trader. His financial year ends 30 September 2023.

On 1 January 2023, Savio rents out a part of his building to a trader who pays $2 400 upfront for 12 months of rent.

Savio receives commission, $375, every three months. On 30 September 2023, Savio has not yet received commission for the previous three months.

Prepare extracts of the financial statements to show how the rent received and commission received are treated.

Answer:

Rent:

Current financial period

$2 400 rent for the year

£2 400 ÷ 12 = $200

Calculate the amount due for the financial year
- 9 months included (J-F-M-A-M-J-J-A-S)

9 × $200 = $1 800

This is the amount that will be stated on the income statement even though more has been received

3 × $200 = $600

This will be listed as a current liability on the statement of financial position

Commission

£375 ÷ 3 = $125

12 × $125 = $1 500

This is the amount that will be stated on the income statement even though not all of it has been received

Identify the amount still owed
- 3 months owing: $375
- This will be listed as a current asset on the statement of financial position

Savio Income Statement (extract) for the year ended 30 September 2023
Other income	$	$
Rent	1 800
Commission	1 500	3 300

Savio Statement of Financial Position (extract) at 30 September 2023
	$
Current assets
Other receivables	375

Current liabilities
Other payables	600

Adjustments for accrued & prepaid income