Adjusting expenses and income for accruals and prepayments, irrecoverable debts and the provision for doubtful debts.
The matching (accruals) concept
The accruals concept matches income and expenses to the period they relate to, not when cash is paid or received. This means expenses are adjusted for amounts owing (accrued) or paid in advance (prepaid).
Accrued expense — an expense incurred but not yet paid; add to the expense, show as a current liability.
Prepaid expense — an expense paid in advance; deduct from the expense, show as a current asset.
Accrued income — income earned but not yet received (current asset).
Prepaid income — income received in advance (current liability).
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