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When A makes prepayment for rent to B, A records it as follows:
Dr Expence Dr Prepayment
Cr Cash, Cr ExpenceBut i ask you, how B records that prepayment amount which is prepaid to him in his accounting?
Hi, when B receives the prepayment, it is considered prepaid income (unearned revenue) to them. Its nature is LIABILITY.
The transaction will be recorded in B books as follow:
1. When receive the prepayment:
Dr. Cash/ bank
CR. Income
2. Income recorded, not incurred until next year:
Dr. Income
Cr. Prepaid Income (liability)Hope this helps.
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you removed my post but i was correct.
Accrued Interest = A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, but not yet paid or received. Accrued interest occurs as a result of the difference in timing of cash flows and the measurement of these cash flows.
so the interest would have been an accrual at 31 Dec
No!
Firstly I did not remove any post.
Secondly, in an exam you must refer to it as accrued income or accrued expense. (Interest, for example, could be either because we might be paying interest or receiving interest)
Thirdly, the word accruals on its own always means an accrued expense.
The definition you quoted does not even mention the word accruals (accrual accounting is mentioned but accrual accounting is an expression covering much more than just recording accrued income and accrued expenses).
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thanks for this John! i was about to rip the book up but
you didn’t remove any post but the entire topic 🙂 it was a mess anyway so i don’t mind
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