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

184

 

KAPLAN PUBLISHING

 

Prepaid income reduces income in the statement of profit or loss for the current 

reporting period and hence reduces overall profit. It also creates a current 

liability in the statement of financial position as it is income received but which 

has not yet been earned and should not therefore be recognised in the 

statement of profit or loss until a subsequent accounting period.  

 

 

Proforma income T-account 

 

 

Income 

 $ 

 $ 

Balance b/f (opening 

accrued income) 

X 

Balance b/f (opening 

prepaid income) 

X 

Profit or loss (total 

revenue for the year) 

X 

Cash (total received 

during the year) 

X 

Balance c/f (closing 

prepaid income) 

X 

Balance c/f (closing 

accrued income) 

X 

 –––– 

 –––– 

 X 

 X 

 –––– 

 –––– 

Balance b/f (opening 

accrued income) 

X 

Balance b/f (opening 

prepaid income)) 

X 

Notes to support the proforma 

•

 

There may be a debit balance brought forward (opening accrued 

income) or a credit balance brought forward (opening prepaid 

income). 

•

 

Receipts received during the year are credited to the income 

account. 

•

 

If there is closing accrued income at the end of the year, this is 

credited to the income account (to increase income in profit or loss 

for the year) and which is also carried forward at the end of the 

year as a debit balance. 

•

 

If there is closing prepaid income at the end of the year, this is 

debited to the income account (to reduce income in profit or loss 

for the year) and which is also carried forward at the end of the 

year as a credit balance. 

•

 

In an income account, there will be more credits than debits; when 

the account is balanced off, the net credit balance is taken to profit 

or loss for the year. 

 

 

 

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