Accounting

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Recommended: History and evolution of accounting

Part A
Accounting is an information science which can be referred to as the process used for collecting, manipulating and classifying financial accounts and data. Economic information forms the foundation of basic accounting. This information is usually kept into records and holds great importance in business. With advancement in technology, accounting is slowly evolving; from the simple use of paper and pencil to the use of highly efficient computers to generate the economic results of a business organization. Accounting does not just refer to the handling of economic transactions of large business companies. It refers to the calculation and utilization of the budget at disposal. Just calculating the amount of money you spend or save during a shopping spree or while buying groceries is also utilizing accounting in your everyday life. One of the oldest and most respected of professions, accounting is used by everyone, from multi-billion dollar companies to an ordinary individual; from handling financial records of deals worth billions of dollars to calculating the total amount of money an individual has in their own pocket, accounting is a common and essential part of everyday life. It is an intrinsic and key function for almost any business, used to generate clear and correct results of the past and current economic situation.
Income statement
An income statement can be defined as revenue statement. It is financial performance statement of a company. It is one of the most important financial statements which indicates how much is the revenues and expenses of a company for specific financial period usually one year. In other words it depicts how income of the company (usually gained through sales of services or products) is change...

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...include the costs in the correct accounting period, regardless of the period in which it is actually paid.
An example of when to use a prepayment journal is for rates that are paid six monthly, due one month before the year-end. 5/6 of the total bill relates to the next financial year so a prepayment should be set up for 5/6 of that bill to defer it until the next period.
Prepayments are included on the balance sheet, as an asset.
Posting the Invoice
When the invoice is received, you should post it to the purchase ledger as normal, into the financial period the invoice is actually received. The accrual or prepayment journals will alter the month to date and year to date balances for the expense so that accurate figures show for each month that the expense relates to, as well as the month it is actually posted to. This is illustrated in the following examples.

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