Expenses And Revenues

Rationale for adjustments in revenue and expense accounts

The Accruals notion of accounting implies that in working out net profit the expenses for the time should be deducted from the revenues produced in the similar time frame. The procedure where by the revenues and expenses for the period are established is viewed as equating expenses with revenues.

In concluding each accounting time frame some changes may be needed for some expense and revenue accounts. This is because some of these accounts have outstanding balances as well as having prepayments and advanced revenues advance.

Entries for prepaid expenses and accrued expenses at the commencement and closing stages of a time period

                                             Expense Account

Prepayment  b/f                     $A           Accrued  b/f                            $A

Payment                                  $A           Profit and Loss                        $A

Accrued c/d                            $A           Prepayment c/d                      $A

Total                                                       Total

Prepayment b/d                    $A           Accrued b/d                              $A

Entries for advance revenues at the commencement and closing stages of a time period

                                             Revenue Account

Accrued  b/f                            $A           Receipts                                   $A

Profit and loss                        $A           Accrued c/d                             $A

Total                                                       Total

Accrued b/d                           $A