Accounting 101: Accruals, Prepayments & Deferrals Mastery

Discover accruals by identifying accrued expenses, which are goods or services received but not yet paid, and accrued revenues, which are revenues earned but not yet received.

Explore the difference between accrued expenses and accrued incomes and how they are recorded as liabilities and assets at period end.

Learn how to record accruals and adjusting entries for accrued expenses and incomes, using salaries, rent, service revenue, and interest income as examples.

Explain accrued interest income as interest earned but not yet received, showing how to calculate it from loan or bond figures and record it as interest receivable and income.

Explore accrued expenses under the accrual basis of accounting through real-world cases from Tesla, Google, and Apple, recognizing December liabilities before payments in January, March, or February.

Explains accrued income case studies, showing how rent receivable and advertising receivable create temporary assets and recognize monthly revenue before cash receipts.

Explain the purpose of accrued adjusting entries, including accruals for expenses and incomes, to ensure accurate recognition, GAAP compliance, and a true and fair view of financial statements.

Defines prepayments as expenses paid ahead of benefit and unearned revenue as revenue collected in advance, creating a liability until services or goods are delivered.

Differentiate prepaid expenses and prepaid incomes by recording them as a temporary asset or liability and recognizing expense or revenue as the company delivers services or goods, i.e. unearned revenue.

Explain how prepaid expenses are recorded as a temporary asset and gradually recognized as expenses through adjusting entries, with examples of prepaid rent and prepaid insurance and monthly transfers.

Identify unearned revenue as cash received before delivering services, creating a liability. Apply adjusting entries to move revenue from unearned to earned over time as services are delivered.

Explore prepaid expenses with real-world cases like McDonald’s rent, showing how prepaid assets convert to monthly expenses via adjusting entries for rent, software licenses, and advertising.

Use prepaid adjusting entries to allocate costs over benefits per the matching principle, while unexpired portions remain current assets and unearned revenues stay liabilities.

Learn how to master expense ledgers using the papa trick to remember debits and credits, including prepaid and accrued amounts, cash movements, and calculating rent expense for the income statement.

Learn the oppo trick for income ledgers and how to prepare the income account using a pattern with owing, prepaid, and cash relationships, illustrated by rental income.

Identify the ending month of the financial year, move to the next month and set its starting day, and go back one year to establish the 12-month cycle for depreciation.

Practice exercise on accruals and prepayments, analyzing rent and rates and rent received through opening balances, prepaid and accrued items, and bank entries.

Practice preparing the rent received income account using the oppo trick, accounting for rent received in advance and rent owed, and calculating the year's balancing figure.

Identify the 12-month cycle for the April to March financial year, and classify payments as accrual brought down, bank payments, prepaid carry down, or accrued carry down.

Explains how adjustments affect financial statements by recognizing accrued expenses and incomes, prepaid items, and unearned revenues, showing matching principle reflected in the profit and loss statement and balance sheet.

Apply accruals and prepayments to financial statements in practice, adjusting income and expense with year-end entries and identifying current assets and liabilities.

Identify accruals and prepayments by timing and benefits, and apply the benefit received test to distinguish accrued expenses from prepaid expenses and their effects on liabilities and assets.