Other Payables And Other Receivables (Copy)

4. Accounting Procedures

4.3 Other Payables and Other Receivables

Key Principle: Matching Costs and Revenues

Also known as the matching concept.
Ensures that expenses are matched with the revenues they help to generate, within the same accounting period.
Essential for accurate calculation of profit or loss.

Examples:

Rent paid in advance (prepaid) should not be charged to this year’s profit.
Wages owing at year-end must be included in this year’s expenses.

Definitions

Term	Definition
Accrued Expense	Expense incurred but not yet paid (e.g. unpaid electricity bill).
Prepaid Expense	Expense paid in advance, not yet incurred (e.g. rent paid for next year).
Accrued Income	Income earned but not yet received (e.g. interest due).
Prepaid Income	Income received in advance, not yet earned (e.g. rent received for future).

Accrued Expenses (Outstanding Expenses)

Increase expenses in income statement.
Increase liabilities in the statement of financial position.

Journal Entry:
Dr Expense A/C
Cr Accrued Expenses A/C

Example:
Wages of $2,000 for December unpaid.

Dr Wages A/C 2,000  
Cr Accrued Wages A/C 2,000

Prepaid Expenses

Reduce expenses in income statement.
Increase assets in the statement of financial position.

Journal Entry:
Dr Prepaid Expense A/C
Cr Expense A/C

Example:
Insurance of $1,200 paid in advance for Jan–Mar next year.

Dr Prepaid Insurance A/C 1,200  
Cr Insurance A/C 1,200

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Accrued Income (Income Receivable)

Increase income in income statement.
Increase assets in the statement of financial position.

Journal Entry:
Dr Accrued Income A/C
Cr Income A/C

Example:
Interest of $400 earned but not yet received.

Dr Accrued Interest A/C 400  
Cr Interest Received A/C 400

Prepaid Income (Income Received in Advance)

Reduce income in income statement.
Increase liabilities in the statement of financial position.

Journal Entry:
Dr Income A/C
Cr Prepaid Income A/C

Example:
Received $600 rent in December for January.

Dr Rent Received A/C 600  
Cr Prepaid Rent A/C 600

Ledger Accounts Examples

Accrued Wages Account

Date	Details	Dr ($)	Cr ($)
Dec 31	Balance c/d		2,000
Jan 1	Balance b/d	2,000

Prepaid Insurance Account

Date	Details	Dr ($)	Cr ($)
Dec 31	Balance c/d	1,200
Jan 1	Balance b/d		1,200

Accrued Income Account

Date	Details	Dr ($)	Cr ($)
Dec 31	Interest Income	400
Jan 1	Balance b/d		400

Prepaid Income Account

Date	Details	Dr ($)	Cr ($)
Dec 31	Balance c/d		600
Jan 1	Balance b/d	600

Effect on Financial Statements

Type	Income Statement	Statement of Financial Position
Accrued Expense	Added to expense	Liability (Other Payables)
Prepaid Expense	Deducted from expense	Asset (Other Receivables)
Accrued Income	Added to income	Asset (Other Receivables)
Prepaid Income	Deducted from income	Liability (Other Payables)