Accruals and Prepayments

Accrued Income and Prepaid Income

Accrued Expense and Prepaid Expense

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Adjustment for accruals and prepayments

Accrued expenses and income belong to the current accounting period as they are incurred or earned in that accounting period. It needs to be included in the income statement for that accounting periodPrepaid expenses and income does not belong to the current accounting period as they are not incurred or earned in that accounting period. It does not need to be included in the income statement for that accounting period

Accounting Principles

The Matching Principle states that when recording expense incurred and income earned, it must be during the same accounting period to determine the profitThe Accrual Principle states that incomes are recognised when earned and expenses are recognised when incurred

Accrued Income is also known as Income Receivable. It is income earned but not received for that accounting period. It is a current assetPrepaid Income is also known as Income received in advance. It is income not earned but received for that accounting period. It is a current liability

Accrued Expense is also known as Expense Payables. It is expense incurred but not yet paid for that accounting period. It is a current liabilityPrepaid Expense is also known as Expense paid in advance. It is expense paid but not yet incurred for that accounting period. It is a current asset