Acca financial Accounting (FA) Study Text ac ca (FA)

Show the ledger accounts required to record the above 

transactions. 

Accrued expenditure will reduce profit in the statement of profit or loss and will 

also create a current liability on the statement of financial position. 

For example, if we were to put through an accrual of $500 for telephone 

expenses. The accounting entries would be: 

Dr Telephone expenses $500 

Cr Accruals $500 

The additional telephone expense would reduce profits by $500. The additional 

accrual would increase current liabilities by $500. 

 

 

---

 

Accruals and prepayments 

178

 

KAPLAN PUBLISHING

 

 

4 Prepaid 

expenditure 

 

 

A prepayment arises where some of the following year’s expenses have 

been paid in the current year. 

In this case, it is necessary to remove that part of the expense which is not 

relevant to this year and create a corresponding statement of financial position 

asset (called a prepayment): 

Dr Prepayment 

$X 

Cr Expense account 

$X 

A prepayment will therefore increase profit in the statement of profit or loss.