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• # 99763
• Tue 20 May 2014 02:02 PM

Hi Everyone,

No matter how many times I come back to it, I am getting my knickers in a twist about Accruals & Prepayments. I am nearing the end of my Level 2 Manual and cannot move on.

I have been sent a Power Point presentation by my training provider Training Link but as I cannot get the audio to work it is next to useless. Does anybody have any study aides or supplementary info on this specific subject which might approach it from a different angle? I am hoping that with a different slant on things, the penny may finally drop.

Thanks for any help you can give me. This is now getting me very stressed.

Fayzee

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• # 99765
• Tue 20 May 2014 03:20 PM

Hi Fazyzee

Not sure if my answer will help much but this is how I remember it.

Take the prepayment first - this is a payment/receipt that has been made in advance of the current accounting period so is an asset to the company so will show under the current assests in the balance sheet.  As the P&L is only to show what should happen in the current accounting period you need to deduct it form the account it relates to i.e. RENT

Accruals are the opposite - so is money owing to/by the company at the end of the financial account perioed and therefore a liability so will show under current liabilities in the balance sheet.  Again as the P&L is only to show what should happen in the curernt accounting period you need to add it to the account it relates to i.e. WATER.

We all get sticky moments and then the light bulb moment arrives

Lisa

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• # 99769
• Tue 20 May 2014 05:29 PM

Hi Fayzee,

the key to it is the year end. look at what date the year end is and then calculate the prepayment.

For example;

a proprietor pays insurance of 164 for the year on 1st june. the year end is 31 december.

This means that the insurance has been prepaid for 6 months and the cost to the currrent year is 164/12x6-82.00. the prepayment gets deducted from teh insurance for the year in the income statement.

It is similar for accruals and accruals gets added to th expense in the income statement.

I hope this clarifies things,

Kind regards

Paula Welsh

• Hello all,
  
  i just noticed we have a forum, just poking around the members area.  My name is Paula welsh and I have been a member since 2005, starting with Associate member and now a full member

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• # 99797
• Wed 21 May 2014 11:45 AM

Hi Fayzee

I found the following code to be really useful:

PD / AC

It is basically -

Pre-paid = Debit (PD)

Accruals = Credit (CR)

This way it makes it far simpler when doing your T-Accounts, you know that the Prepaid part will always go on the Debit side (so that means the T-Account which it relates to i.e Insurance will be on the Credit Side) Then just reverse it for the Accruals.

I would say even if you are not asked to do T-Accounts, if you get into the habit of doing them and balancing them off, before transferring to the Trial Balance, it should hopefully make things so much easier when it comes to the exam.

It also makes sense that for the balance sheet the Prepayments always go with the Debtors and the Accruals always go with the Creditors.

I hope this makes sense.

Best of luck

Sam

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• # 99801
• Wed 21 May 2014 01:48 PM

You're all gems!

Thank you so much for taking the time to reply.  Each different approach to explaining it is useful as every time I read it in a different way it chips away a little more at the fug that has formed in my head.

I've printed out your comments and at my next study session (tomorrow) I will properly go through all the different clues and methods you have told me.

Thanks again, the forum is invaluable and so is the advice received from fellow students.

Fay

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