677971
| Question | Answer |
| Accruals (Accruals are used where an invoice should have been received, or a payment made, through the I/S, but has not yet happened. The expense can be recorded in the I/S, and the accrual recorded in the SFP even though an invoice and payment has not yet been recorded) | ACCRUALS ACCOUNT IS A LIABILITY ACCOUNT → THE BILL IS UNPAID AT THE YEAR END • A COMPONENT OF CURRENT LIABILITIES IN THE BALANCE SHEET DR I/S Expense account CR SFP Accruals account |
| Prepayments (Prepayments are used when an invoice has been received and entered, or a payment made, and the transactions recorded in the I/S, in advance of the current accounting period. So, for example, rent paid three months in advance) | PREPAYMENTS ACCOUNT IS AN ASSET ACCOUNT → THE FIRM WILL DERIVE FUTURE ECONOMIC BENEFITS FROM IT • A COMPONENT OF CURRENT ASSETS IN THE BALANCE SHEET The expense has already been included in the I/S, so now we need to remove it from the I/S and put it into the SFP. DR SFP Prepayment account CR I/S Expense account |
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