![]() Record the purchase invoice or other payment – When you receive the actual invoice or make the payment, record this as normal. This is corrected when you record the purchase invoice or other payment. When you view your profit and loss for the final month, the balance on the relevant nominal ledger account appears as a credit value. The reversal clears the value from the accrual nominal ledger account. Post a journal to reverse the accrual – The balance on your accruals nominal ledger account increases each month until the final month when you need to reverse it. The charge also posts to the accruals balance sheet nominal ledger account. Post the monthly accrual journal – To record an accrual, for each month affected by the accrual, you need to post a charge to a profit and loss nominal ledger account. In this example, you’d post these journals for January, February and March. You need to repeat these steps for each month the original transactions covers. This reduces the balance on your prepayment nominal ledger accounts and posts one month’s value to your profit and loss. You’ve now recorded the monthly prepayment. ![]() Enter the relevant information to record the monthly prepayment, for example:. ![]() Enter the monthly prepayment journalĮnter a reference, for example, Monthly rent prepayment.Įnter the date you want to use for the monthly prepayment, for example, the last day of the month. To move the monthly value back to your profit and loss, you should now record the first monthly prepayment journal. The balance now appears on your prepayment nominal ledger account on your balance sheet. You’ve successfully reversed the effect of the payment or purchase invoice. Enter the relevant information to reverse the original transaction, for example:.If required, enter a description for the journal. This should be the same as the original transaction. From Adjustments, choose Journals, then New Journal.Įnter a reference, for example, Rent prepayment.Įnter the date you want to use for the journal.This payment covers three months and you want to spread the cost to show £200 for each month on your profit and loss. In the following steps, we’ll use the example that you make a £600 payment for rent in January to your rent nominal ledger account, 7100. Reverse the original purchase invoice or other payment You need to repeat this for each month affected by the prepayment. Post the monthly prepayment journals – After reversing the effect of the original transaction, you should then move the monthly values back from the prepayments nominal ledger account to the relevant expense nominal ledger account. This moves the value from your profit and loss to the prepayments balance sheet nominal ledger account. Reverse the effect of the purchase invoice or other payment – Once you’ve posted the original transaction, you need to reverse the effect of it using journals. The steps below assume you’ve already done this. Record the original transaction – When you receive the original invoice or make the payment, you should record this as normal as a purchase invoice or an other payment. If you’re making a payment in instalments, you should record the payments as normal as and when you make them. These steps only apply if you make a lump sum payment and want to spread the cost. When you receive the actual amount, you can make adjustment to the final amount Record a prepayment Instead of recording the whole value of the invoice in March, you estimate the cost and record a journal each month. This where you are billed for something at the end of a quarter and want to spread the cost across each month.įor example, you receive an invoice for electricity usage in March for the period January to March. AccrualsĪn accrual is when you pay for something in arrears. Instead of recording single lump sum in January, you spread the cost across each month. PrepaymentsĪ prepayment is when you pay an invoice or make a payment for more than one period in advance but want to show this as a monthly expense on your profit and loss.įor example, you pay your rent in January to cover the next six months ( January to June). This will give you a realistic picture of your monthly profits and how your business is performing. Rather than record it as a lump sum, use journals to spread the cost over the number of months the invoice or payment covers. ![]() If you receive an invoice or make a payment that covers several months, and you record it as a lump sum in one month, this can affect your profit for that month. Spreading the cost like this is known as making a prepayment or an accrual. How to spread the value of income and expenses across several months to improve your cash flow and get a realistic picture of your profits.
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