Make entries for simple adjustments for expense prepayments and accruals
A prepayment is an expense paid early that belongs to a future period. An accrual is an expense already used but not yet paid. Both need adjusting entries so the accounts show the correct cost for the period.
Formula
Prepayment = Amount Paid × (Months Remaining ÷ Total Months); Accrual = Expense Owed but Unpaid
Real World
Tesco pays £12,000 annual building insurance on 1 October; at its 31 December year-end, only £3,000 (3 months) belongs to this period — £9,000 is a prepayment carried forward.
Exam Focus
Always state which concept applies (accruals or prepayments) before calculating — examiners award method marks for this.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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