Adjustments needed

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Accrued expenses

Accrued expenses (accruals) are expenses which relate to an accounting period but have not been paid for. They are expenses which are charged against the profit for a particular period, even though they have not yet been paid for.

Accruals are included in payables as current liabilities as they represent liabilities which have been incurred but for which no invoice has yet been received.

Accounting Treatment: Accruals

Dr Expense (I/S)
Cr Accruals (SOFP)

Prepaid expenses

Prepaid expenses (prepayments) are expenses which have already been paid but relate to a future accounting period. Therefore, these are payments which have been made in one accounting period, but should not be charged against profit until a later period, because they relate to that later period.

Prepayments are included in receivables in current assets in the statement of financial position. They are assets as they represent money that has been paid out in advance of the expense being incurred.

Accounting Treatment: Prepayments

Dr Prepayments (SOFP)
Cr Expense (I/S)

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