Accruels/prepayments

Hi all - i'm new to this forum!
I'm starting at intermediate stage having not done foundation or any previous qualifications in accounting
I took a weeks bookkeeping course which i have found extremely valuable and learn't a lot in that week.

I have rather an odd question and i hope i explain myself correctly for someone to help me!

Prepayments:

E.g. The water rates of £200 have been paid for 6 months, April to September 2009. (Our year end is 31st april 09).

Here i understand that 1 month is included in this year and 5 months have been prepaid. So the answer would be as follows:

Debit: prepayments (200/6) x 5 = £167
Credit: water rates £167

So in the next accounting year what happens then? In the next year do we have to credit prepayments by an amount? do you then credit prepayments 167 and debit water rates 167???

If someone could answer this question i would be more than grateful - its wrecking my brain!!!

Gemma

Comments

  • Nilesh Mandvia
    Nilesh Mandvia Registered Posts: 91 ? ? ?
    Reverse it

    You revese the accrual or prepayment in the following month/period.

    Begining of the next period (month/year), in your case 01/05/09 you would do the following journal

    Debit Water Rates £167
    Credit Prepayments £167


    By the way there are only 30 days in April!!!!.

    Nilesh
  • GemmaLouise
    GemmaLouise Registered Posts: 56 ? ? ?
    thankyou!!

    haha typical the 1st post i make and i make myself look stupid!!

    haha - thanks for your help!

    Gemma
  • PGM
    PGM Registered Posts: 1,954
    thankyou!!

    haha typical the 1st post i make and i make myself look stupid!!

    haha - thanks for your help!

    Gemma

    Don't worry, people that don't try and learn are the ones that look stupid :001_tongue:

    With accruals and prepayments, you always do exactly the same transactions but in reverse, AND in the following period.
  • any2002uk
    any2002uk Registered Posts: 88 ? ? ?
    This example of prepayment look great but i would like to see Accrual example please.
    now i understood prepayment, but still confuse about Accrual. use similar example for water please

    thanks
  • Debz
    Debz Registered Posts: 17 Dedicated contributor ? ? ?
    Accruals

    Lets say water rates for the year was £200. You paid £100 which covered a 6 month period May - October. The accounts need to show a 12 month period - so you would need to accrue for the other 6 months not shown ie. November - April.
    The transaction you would put through is Dr water rates Cr accruals £100
    ( so you now have £200 in the accounts £100 accrued and £100 Paid)

    The following year you would Dr Accrual £100 Cr water rates £100

    Hope this makes sense
  • any2002uk
    any2002uk Registered Posts: 88 ? ? ?
    Please tell me if i am correct in simple plain english.
    The financial year is May 1999 to April 2000.
    so the water rent charged bill start cover for May to October 1999 £100.

    £200 for one year water bill. 6 month = £100

    Then we remove the November 1999 to April 2000 into new financial year of May 2000 to April 2001? which is other £100

    Accrual mean not yet paid? we paid every month £17 (is it called accrual awaiting to be paid) or paid full £200 (is it called prepayment for that it is not accrual?)
    Financial year May1999-april 2000
    _____Accrual______
    ¦ Credit £100
    ¦
    ¦
    ¦

    Financial year May 2000- April 2001 to be awaiting payment
    _______Accrual_____
    Debit £100 ¦
    ¦
    ¦
    ¦
    is it right? accrual means one bill charge £200 and we sent the cheque every months?

    thanks
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