What is the difference between accrual and payment in accounting? (+ newspaper registration)
In some cases, the entire cost may be paid in one lump sum before any expenses are incurred, such as paying rent for the next 6 months of the office or workplace, or paying the one-year building insurance premium, in these cases, since no expenses have been incurred yet, the amount We record a payment in an account under the title of advance payment, and when the cost is incurred, i.e. the period has passed, it is taken out of this account and added to the annual cost account.
For a better understanding, consider the following example.
prepayment
Example: Mr. Mohammad pays 10,000,000 Rials for the 10-month rent of the office by check on 1/4/92.
In this case, the following registration is made in the newspaper office:
Date Description Debtor Creditor
1/4/1992 rent payment
Bank 10,000,000
10,000,000 for paying rent for 10 months
It should be noted that the amount of rent paid was for 10 months (that is, 9 months in 2012 and 1 month in 2013), so at the end of the year, before the accounts are closed, an amount of the advance payment, which has been converted into an expense, must be calculated. and its corrective registration should be done in the books.
Calculations:
A) 1,000,000=10,000,000/10
b) 9,000,000=9*1,000,000
So the following registration is done at the end of the year in the newspaper office:
Date Description Debtor Creditor
12/29/92 rental fee
Advance payment of rent 9,000,000
9,000,000 for the registration of the 9-month rental fee
It means that the advance payment account that was debited has been credited and decreased and the expense account has been debited against it.
Important: Note that the prepaid account balance is a current asset and a permanent account.
interim interest
There are times when some of the work is done but not yet finalized and the person doing the work needs an amount to continue the work.
Example:
Mohammad and Hassan Company has not paid the remuneration for the months of May, June and July to the accountant of the institution due to the lack of financial resources, and on 2/5/1392, the accountant of the institution requests to receive an amount on account and Mr. Mohammad checks to provided them with the amount of 750,000 Rials as a bill.
The registration of the above article in the offices of Mohammad and Hassan is done as follows:
Date Description Debtor Creditor
5/2/92 on account
Bank 750,000
750,000 for registration on account paid to the accountant of the institution
Note: Regarding the advance payment, as you understand, the advance payment is paid before the work is done and is paid on account for the work done.
This post is written by zahra9557