4.3 Other payable and other receivables

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Importance of Matching Costs and Revenues

Definition: Matching costs and revenues is an accounting principle that ensures expenses are recorded in the same period as the revenues they help generate. This provides a more accurate picture of a business financial performance.

Explanation:

How is it relevant?

By matching costs with revenues, businesses can accurately determine their profit or loss for a specific period. This helps in evaluating the true performance of the business.

How is it Applicable?

If a business incurred costs in December 2023 but only made sales related to those costs in January 2024, those costs should be recorded in January when the revenue is recognized.

If a business paid £1,000 for raw materials in December 2023 but used them to produce goods sold in January 2024, the £1,000 should be recorded as an expense in January, not December.



Journal Entries for Accrued and Prepaid Expense



 Journal Entries for Accrued and Prepaid Income


Past Paper Practice Question

Question: Jas Ltd paid £1,200 for a one-year insurance policy on March 1.                              Prepare the journal entries and ledger accounts for the following:

  1. Payment of insurance on March 1.

  2. Adjusting entry at the end of the year (December 31).

 Answer:



 4.2 Accounting for depreciation and disposal of non-current assets  Home    4.4 Irrecoverable debts and provision for doubtful debts




 

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