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"Accruals" show a DEBIT BALANCE at the YE

"Accruals" show a DEBIT BALANCE at the YE

Hi Guys

It is easy to deal if the insurance is paid upfront, but we receive a SageCover invoices UPFRONT for the 12 month period but are paying them monthly by D/D. The Invoice date is 7th November. Year end is 31 March. The way I was posting it in Sage is as follows:

(Let's assume the Invoice amount is £432.00, i.e £36.00 p/m)

1. Post a Supplier's Invoice:

Dr Accruals <-- Cr Supplier £432.00

2. On a monthly basis:

Dr Insurance <-- Cr Accruals £36.00

3. At the Year End I have an obvious problem: My Accruals A/c has a DEBIT BALANCE, which doesn't look right, Or Does it?????

Guys, please HELP. I've got couple of a similar invoices (i.e.Car Insurance) and am stuck!. Some saying that it should be treated as a Prepayment, and it confused me completely.

Many thanks in advance. 


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29th Jun 2012 11:31


Your first journal is wrong - the debit (and subsequent credits) should be to prepayments

Thanks (1)
to Portia Nina Levin
29th Jun 2012 11:41

Accruals OR Prepayments?

Thank you very much. so it looks now like we will have an increase in current assets at the YE?

Thanks (0)
29th Jun 2012 11:56

Yes ...

you have a current asset representing the unused part of your sage subscription.

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29th Jun 2012 12:58

My way

Why is it "insurance"?

Dr Expense (whatever it is)

Cr Trade creditors


Dr Trade creditors

Cr Bank

Each DD

Dr Prepayment

Cr Expense

Future expenses (at end of month)

Dr Expense

Cr Prepayment

Reverse previous journal (at start of month)

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to paul54321
29th Jun 2012 13:15

Thank you. Your entries are very logical. Would it be correct by following the shorter route?, i.e.

1. Invoice: 

           Dr Prepayments <-- Cr Supplier  £120.00

2. Each month: 

           Dr Supplier  <-- Cr Bank                               £10.00

           Dr Expense <-- Cr Prepayments                  £10.00  

This way, in my opinion, we won't need a reverse entry each month.




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29th Jun 2012 13:28


You can do it the shorter way.

The revering entry method is more useful when the invoicing is irregular in some way.

Thanks (1)
to johnhenry
29th Jun 2012 13:41

THANK YOU SO MUCH! I will try to figure it out the usefulness of the reversing method later, but for now I can confidently move on. Thanks alot!

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03rd Jul 2012 19:42

Are you sure?

That the invoice isn't an annual invoice to cover regular payments (which will be listed)?  If it is you can just file it without entering it anywhere and treat each payment as a bank payment.  You just need to have it to back up the VAT claimed.

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to AnnAccountant
04th Jul 2012 20:42

Yes, it is indeed.

Dear Richard

The insurance policy (public libility insurance or car insurance) is not even an invoice, but it is received when the agreement with insurance company is made and the whole annual amount is stated. I treat these policies same as invoices as don't know other way. We also have a real vat invoices (from Sage) for the SageAccounts cover and Sage Payroll Cover, which state the whole amount applicable to 12 months period but we pay monthly by direct debit. In fact I have no doubts how to treat such invoice if it is indeed paid in full in advance, which means it will be a real "Prepayment" at the y/e.

But the issue is only when such invoices or insurance policies (which show the whole amount and relate to 2 different financial years). As you will see from the earlier posts that I was corrected by other members that these invoices/ policies have to be posted to the "Prepayments" account even they were not yet paid.

I agreed indeed, as it sounds much more correct than using Dr of Accruals account, but deep inside I still strugle to understand "why this should be treated as "Prepayment"?? The Prepayment account will be distorded in such way that it will consist from the really prepaid invoices and not paid at all, and it will be confusing on the balance sheet at the year end. How do you normaly post such invoices, which cover 2 accounting periods but are unpaid at all or paid monthly by d/d???

Thank you.

Thanks (0)
04th Jul 2012 20:51


If you receive an enter a purchase invoice then you are recognising the expense up front and that makes it a prepayment.

If you don't post the invoice and the payments are made monthly in equal amounts then you can post a bank payment as Richard says. You would have to ensure that the payments equalled the invoice though - not just the planned payments but the actual payments.

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05th Jul 2012 13:45

Accruals & Prior Year Adjustment : Interest on long-term loans

Thank you all for the valuable help.

We receive a statement from the bank (Loan account) once a year. I am preparing the accounts for the y/e 31/03 and need to accrue an interest on loan for Jan-Mar ( as the correct amounts will have only in Dec 2012). If I know the correct amounts then I would post: Dr Expense -  Cr Long-Term Loan and all will be fine, but now what to do?

I can estimate the average interest for the last 3 months and post

Dr Expense  <- Cr Accruals  e.g. £150.00


At the start of the new year (01/04/2012) I understand I will need to reverse it :

Dr Accruals <- Cr Expense £150.00

When the statement received in December it may show more or less interest so would need to adjust taxable profit for the prior year. How to do that correctly?

In December I can post: Dr Retained Earnings <- Cr Long-term Loans (i.e. £170.00) with the date 01/04/2012 to adjust the opening balance on the loan account, but am not sure if the Retained Earnings will be correct then? Confused with the dates and journals. Please help.

Thanks (0)
to NYB
05th Jul 2012 14:28


Andrew40 wrote:

When the statement received in December it may show more or less interest so would need to adjust taxable profit for the prior year. How to do that correctly?

Why would you want to do that? Provided your 31 March 2012 figure is a reasonable estimate of the accrued interest to that date you don't need to make any adjustments. You would want to make a prior year adjustment only if you had materially over- or under-estimated the interest charge. Only a guess, but I suspect that £150 is not a material amount :)

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05th Jul 2012 14:58

Assuming you're right,

I still will need to correct the balance on a Long-term loan account. If I only do one entry at the y/e Dr Expense<-Cr Accruals, the end and then the opening balance on the Loan account will be incorrect. How should I correct it in the new tax year?

Or, better to post as follows:

Dr Expense <-Cr Loan £150 , and the in the new year, If it occurs that it was in fact £170, do the adjustment as :

DrExpense<- Cr Loan £20.00  (noting that this is interest for the prior year)??


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05th Jul 2012 15:33


Accrue for your estimate at the end of a month and reverse it at the start of the next month.

You then only enter the charge when you know the actual amount.

I would use the rule of 78 to calculate the accruals.

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05th Jul 2012 16:20

I really can't see what the issue is

Your 31 March balance on the loan is always going to be based on your best guess. If you follow Peter's advice, you're sure to be pretty close - does it really matter if you're a few quid out one way or the other?

Using your figures (let's assume that the bank changes its procedures and issues the next statement on 31 March 2013, so that you know the exact amount of interest  paid in the 15 months to 31 March 2013) - let's say that is £900, of which £170 relates to the quarter to 31 March 2012, but you've only accrued £150 for that period:

Year ended 31 March 2013:

Interest (15 months)                   £900

Less accrued to 31 Mar 12         £150

P&L charge to 31 Mar 13           £750


So, you've undercharged interest by £20 in 2012 and corrected it by overstating interest by £20 for 2013. Honestly, who gives a hoot? There is no need to make any prior year adjustment, there is no need to make separate disclosure. It's no different from any other accrual or prepayment based on best estimates - they will always sort themselves out in the end. Take heat & light, for instance. Let's say your bill to 28 Feb is £360. So you accrue £120 for the month of March. But, when the bill to 31 May comes in it says £420 (by which time you've been a good boy and completed and filed the accounts). Are you seriously suggesting that you're going to either amend the accounts or include a note in the 2013 accounts to say that £20 of the heat & light charge relates to the prior year?

If the differences are not material, close the books and move on.

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05th Jul 2012 16:38

Thank you again to you all.

I am so pleased there are so good professionall people in this forum who willing to help.

I wish I could help in return. I will follow your advice. I think I was trying to be too perfect which in reality is a waste of time. Thank you.

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