Accruals, prepayments, accrued income and deferred income.

The accruals or matching concept states that we recognize an income or expense in the income statement in the period in which it is earned or incurred, not in the period in which payment is received or made.

In order to ensure that costs (and revenues) are allocated to the correct period, we use prepayments, accruals, accrued income and deferred income.

An accrual is where you have received a service, but not yet paid.

A prepayment is where you have paid for a service, but not yet received that service.

Deferred income is where you have been paid, but have not yet provided the service.

Accrued income is where you have provided a service, but not yet been paid.



Accrual =  liability
Accrued Income = Asset

Prepayment = Asset
Deferred Income = Liability


Balance Sheet

Assets
     Cash
     Prepayments
     Accrued income


Liabilities
     Accruals
     Deferred income