This is general information, not tax or legal advice. Rules and rates change, so check GOV.UK or ask an accountant.
On the accrual basis you record income and costs when they belong to, not when cash moves. Two month-end adjustments do this: accruals and prepayments. See cash vs accrual accounting.
Accruals: costs you owe but have not been billed for
Example: your accountant did £600 of work in October but will invoice in November. At 31 October, add a journal: debit accountancy fees £600, credit accruals (a liability) £600. Reverse it on 1 November, when the invoice arrives, so the cost is not counted twice.
Prepayments: costs paid in advance
Example: you pay £1,200 insurance on 1 October for 12 months. Only £100 belongs to October. Record the payment as a prepayment (an asset), then each month release £100: debit insurance £100, credit prepayments £100.
Accrued and deferred income
- Accrued income: you earned it but have not invoiced it.
- Deferred income: a customer paid in advance for work you have not yet done.
A simple month-end routine
- List costs for work done but not yet billed.
- List annual or quarterly costs paid in advance.
- Post the journals and set reversals.
- Check profit and loss against last month.
See the month-end close checklist.
Do you need them?
If you use the cash basis for tax, or your amounts are small, you may skip them. Larger or seasonal businesses benefit most.
How AvrioBooks helps
Post accruals and prepayments as manual journal entries, and lock the period when done. See journal entries and lock dates.
Frequently asked questions
What is an accrual?
A cost you owe for work already done but which has not yet been billed.
What is a prepayment?
A cost paid in advance that belongs partly to future months, recorded as an asset and released over time.
Do I need to reverse an accrual?
Usually yes, on the first day of the next period, so the cost is not counted twice when the bill arrives.
Can I do this in AvrioBooks?
Yes, with manual journal entries and period lock dates.
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