Accruals and Prepayments

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mattyj3nks
mattyj3nks Registered Posts: 28 Regular contributor ⭐
in AAT Level 3 (Level 6 in Scotland)
hi all,
i am really finding it hard to get my head around the whole thing of accruals and prepayments.
i have read the text book but still cant make sense of it.

im sure i understand that in the E.T.B:

Accruals

in adjustments

DR = Telephones (for example)
CR = Accruals

in P+L

DR = Telephones

in B/S

CR = Accruals


Prepayments

in adjusments

DR = Prepayments
CR = Rents paid (for example)

in P+L

CR = Rents paid

in B/S

DR = Prepayments

i hope thats right!!
i just cant seem to understand the journal entries and the t accounts, i need to try and understand this to then i can try to find a way of remembering it.

someone please help......

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  • burg
    burg Registered, Moderator Posts: 1,441 mod
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    Yes you are right

    One way to remember

    Debtors must be a debit balance - Debtors & Prepayments go together so the prepayment haeding must be a debit

    Creditors must be a credit balance - Creditors & accruals go together so the accrual heading must be a credit

    Another is

    If you are prepaying an amount you are reducing the charge in the expense heading for the current year/period as it relates to the next one. An expense is always a debit so to reduce you most post a credit to the expense heading

    If you are bringing in an expense from the next year/preiod (accruing) then you are trying to increase the charge in the current year/period. As before an expense must be a debit so to increase it you most post a debit to the expense heading

    Hope this helps!
    Regards,

    Burg
  • mattyj3nks
    mattyj3nks Registered Posts: 28 Regular contributor ⭐
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    what t accounts would i need to post to though??
    and what would the entries be??

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