Other receivables and payables

The matching (accruals) concept says:

• Recognise income when earned, not when received.
• Recognise expenses when incurred, not when paid.

Cash receipts and payments don't always align with the period that benefits. Year-end adjustments fix this — turning cash-basis records into accruals-based financial statements.

Without matching: profit fluctuates wildly based on payment timing. With matching: profit reflects the economic activity of the period.

Mnemonic for direction: 'Accrued/In-advance reduce profit. Prepaid/Receivable increase profit.'

Or think conceptually: only THIS year's income and expenses count.

Accrued expense:

• Dr Expense (IS)
• Cr Accrual / Other Payables (SOFP CL) Narrative: '[X] incurred but unpaid at year-end — matching concept.'

Prepaid expense:

• Dr Prepayment / Other Receivables (SOFP CA)
• Cr Expense (IS) Narrative: '[X] paid for next year's benefit — matching concept.'

Income receivable:

• Dr Income Receivable / Other Receivables (SOFP CA)
• Cr Income (IS) Narrative: '[Income] earned but not received — matching concept.'

Income in advance:

• Dr Income (IS)
• Cr Income in Advance / Other Payables (SOFP CL) Narrative: '[Income] received in advance — matching concept.'

Expense for the period:

$\text{Expense} = \text{Cash Paid} + \text{Closing Accrual} - \text{Opening Accrual} - \text{Closing Prepayment} + \text{Opening Prepayment}$

Income for the period:

$\text{Income} = \text{Cash Received} + \text{Closing Receivable} - \text{Opening Receivable} - \text{Closing in Advance} + \text{Opening in Advance}$

Logic check: the formula adjusts cash flow up for items WE INCURRED but haven't paid (closing accrual) and down for items WE PAID but haven't consumed (closing prepayment). Opening items reverse — they were last year's closing now reversing.

Example: £2,400 insurance paid on 1 Oct 2026 covers 12 months (Oct 2026 − Sep 2027). Year-end 31 Dec 2026.

Oct, Nov, Dec 2026 = 3 months of coverage → expense for 2026 = £2,400 × 3/12 = £600.

Jan–Sep 2027 = 9 months → prepayment at year-end = £2,400 × 9/12 = £1,800.

Procedure:

1. Identify the period the payment covers.
2. Count months falling in the current year.
3. Apportion: payment × (current year months ÷ total months).

Current Assets:

Current Liabilities:

Aggregation of multiple items into 'Other Receivables' or 'Other Payables' is acceptable. Splitting them is also acceptable.

When asked WHY year-end adjustments are made, the answer is always the same: matching (accruals) concept.

The matching concept requires:

• Income recognised when earned (not received).
• Expenses recognised when incurred (not paid).

These four year-end adjustments (accrual, prepayment, income receivable, income in advance) are the practical machinery for applying matching at the year-end.

In extended-response questions, ALWAYS cite the matching concept and explain how each adjustment ensures the income statement reflects the period's TRUE economic activity.