1. Unlocking Financial Accounting Chapter 6 Chapter 6 Adjustment to accounts 1: accruals and prepayments Learning summary By the end of this chapter you should know: what an accrual is accounting treatment for accruals what a prepayment is accounting treatment for a prepayment.

2. Unlocking Financial Accounting Chapter 6 What is an accrual? – key points For accounting purposes an accrual is ‘a liability in respect of goods and services provided to a business in the form of continuous supply, consumed up to an accounting date but not billed by that date’ (R. Brockington (1993)). It is simply an amount that relates to a particular period but as yet has not been settled.

3. Unlocking Financial Accounting Chapter 6 Accounting treatment for accruals – key points An accrual adjustment requires: an increase in the expenses on the income statement an increase in or a creation of an accrual on the balance sheet, under the current liabilities section.

4. Unlocking Financial Accounting Chapter 6 What is a prepayment? – key points For accounting purposes prepayments are ‘amounts already paid which will fall to be treated as expenses in a forthcoming period’. (R. Brockington (1993)). It is simply an amount that relates to a future period and therefore needs to be shown in that future period

5. Unlocking Financial Accounting Chapter 6 Accounting treatment for a prepayment – key points A prepayment adjustment requires: a decrease in the expenses on the income statement an increase in or a creation of a prepayment on the balance sheet, under the current assets section.