Accruals Question

alicemaylara Registered Posts: 259 Dedicated contributor 🦉
Im being a bit cheaky and using the members forum to get an answer for my student question, but its to do with work so I'm hoping someone will be able to help

I am preparing the accounts for a company. I have an invoice for a subscription which was issued within the year. It has not be paid but the actual membership fulls after the year end so is it an accrual or a creditor? An accural is something incurred in the year but the membership is for next year, normally this would be a prepayment but as they havent paid it yet is it a creditor
Hope that makes sense, Thanks


  • blobbyh
    blobbyh Registered Posts: 2,415 Beyond epic contributor 🧙‍♂️
    It's a creditor by default regardless of whatever else you think it might be! Whether you have paid it or not doesn't affect it's position as an accrual or prepayment and they will remain a creditor until you pay them.

    Let's assume the membership is for Jan 2010 to Dec 2010 and we received the invoice for £600 on 12th December 09. The normal treatment of this would be to debit the net amount of the invoice to P&L expenses within the relevant tax period e.g. December 2009, then at month end e.g. 31/12/09, credit the expense and debit prepayments. On 1/1/10, this would reverse to credit prepayments and debit the expense code.

    As each month is completed, the amount being posted/reversed decreases accordingly until the final twelfth is spent in December 2010. Are you aware or comfortable with reversals concepts for both accruals and prepayments since IMO, these are not explained particularly well by the AAT?
  • AK002
    AK002 Registered Posts: 2,492 Beyond epic contributor 🧙‍♂️
    As blobbyh says, you have received the invoice so by default it is a creditor.

    Entry would be Dr expense Cr creditors.

    Then you would prepay however much of it relates to the next year. Cr expense Dr prepayments
  • alicemaylara
    alicemaylara Registered Posts: 259 Dedicated contributor 🦉
    Ah excellent, thank you for explaining that so well :001_smile:
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