An accrual (or accrued expense) is a temporary adjustment made when you are charged for goods and services after the end of the accounting period to which they relate. A prepayment (or prepaid expense) is an adjustment made when you are charged before the period.
Accruals and prepayments are normally entered on a reversing journal. You should enter a new set of accruals and prepayments at the end of each period for which you are preparing accounts. For instance, you may be expecting an accountancy fee of £1,200 after the end of your December 2020 year end but in respect of that whole year. If you prepare monthly management accounts you may wish to accrue 1/12 of this amount when you prepare the January 2020 accounts, 2/12 when you prepare February’s and so on.
To enter a reversing accrual:
•Click on the RJN button on the main toolbar
•Enter an amount in the debit column and select the relevant analysis account for each accrued amount
•With the cursor in the last row (the one containing the balancing total), click on the Accruals account caption
To enter a reversing prepayment:
•Click on the RJN button on the main toolbar
•Enter an amount in the credit column and select the relevant analysis account for each prepaid amount
•With the cursor in the last row (the one containing the balancing total), click on the Prepayments account caption
If you calculate your accruals and prepayments on a spreadsheet and have a large number to enter every month, you may wish to organise your spreadsheet so that you can automatically import the journal. To import a reversing journal choose the Transaction>Reversing Journal>Import command (or click on the down arrow just to the right of the RJN button).
