Chapter 11: Accruals,
Prepayments, Accrued and
Deferred Income
Ajmal Fayis
Chapter - Overview
Accruals
Prepayments
Accrued income
Deferred income
Accrual and matching concepts
Accrual Basis
The statement of profit or loss must include all income and expenses related to the period,
regardless of the timing of cash receipts or payments.
The accruals concept is applied to:
Receivables and Payables
Business Expenses and Income
matching concept
The matching concept requires expenses incurred in generating revenue to be matched against the
revenue in determining profit or loss for the period.
Accruals Concept on Accruals, Prepayments, Accrued Income and Deferred Income
Category Asset or Liability Double Entry
Accruals
Prepayments
Accrued Income
Deferred Income
Accruals are expenses paid in arrears.
Prepayments are expenses paid in advance.
Accrued Income is income generated for payments received in arrears.
Deferred Income is income generated with payments received in advance.
What is an Accrual?
An accrual is recognised when an expense incurred has not been paid or invoiced for by the end of the
financial period.
What is a Prepayment?
A Prepayment is recognised when a business pays in the current financial period for an expense that
relates to the next financial period.
What is Accrued and Deferred Income?
Accrued income is recognised when a business receives its income in arrears after earning it.
Deferred income is recognised when a business receives its income before earning it.