ACCRUALS INTRODUCTION

Accruals are used to recognise revenues and costs booked in one period but relating
to another period

The main categories of accruals are:

1)Prepaid costs; i.e., charges relating to goods or services to be supplied later. For
instance, three-quarters of a rental charge payable in advance for a 12-month
period on 1 October each year will be recorded under prepaid costs on the asset
side of the balance sheet at 31 December

2)Prepaid income; i.e., income accounted for before the corresponding goods
or services have been delivered or carried out. For instance, a cable
company records three-quarters of the annual subscription payments it receives
on 1 October under prepaid income on the liabilities side of its balance sheet at
31 December
We should also cite accrued income and cost, which work in the same way as
prepaid income and cost, only in reverse.

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