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Other receivables and payables
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The accruals concept says expenses and income belong to the period they relate to. Year-end adjustments make this happen.
Other payables (accruals)
An other payable (accrued expense) is an expense owing at the end of the period, for example electricity used but not yet billed.
It is added to the expense in the income statement and shown as a current liability.
Example: electricity paid £2100, £300 owing. Expense = 2100 + 300 = £2400.
It is added to the expense in the income statement and shown as a current liability.
Example: electricity paid £2100, £300 owing. Expense = 2100 + 300 = £2400.
Other receivables (prepayments)
An other receivable (prepayment) is an expense paid in advance for the next period, such as insurance paid for next year.
It is deducted from the expense and shown as a current asset.
Example: rent paid £6500, of which £500 is for next year. Expense = 6500 − 500 = £6000.
It is deducted from the expense and shown as a current asset.
Example: rent paid £6500, of which £500 is for next year. Expense = 6500 − 500 = £6000.
Income
Income can be adjusted too.
Income owed to the business (such as rent receivable not yet received) is added to income and is an other receivable.
Income received in advance is deducted from income and is an other payable.
Income owed to the business (such as rent receivable not yet received) is added to income and is an other receivable.
Income received in advance is deducted from income and is an other payable.
Insurance paid during the year was £1800, which includes £300 for next year. What is the insurance expense?
- £300 is a prepayment (other receivable).
- 1800 − 300
Answer: £1500
Expenses owing are other payables (accruals): add to the expense, current liability. Expenses paid in advance are other receivables (prepayments): deduct from the expense, current asset. Income is adjusted the opposite way.
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