Accruals and Prepayments Blog

Want Help With Your AAT Accruals and Prepayments?

Whilst marking various progress tests and practice assessments, I find there are certain areas that regularly cause students problems. In the AAT Level 3 Advanced Diploma (and within Accounts Preparation / Advanced Bookkeeping), one of the problem areas tends to be Accruals and Prepayments (yes I saw you shudder and pull a face!) Below are the latest results from the related AAT exam (Task 3 is Accruals and Prepayments):

AAT Level 3 ACPR Results 2016

When I was studying my AAT Level 3, I was taught the clever trick – Accruals has a cr in it – this works well with expenses, as accrued expenses build up on the credit side. Then I reverse it for income, if this is what the question is looking for. I also reverse it for prepayments of expenses. Originally, this was enough to get me started and then I established the logic behind it i.e. I started to understand why I was debiting and crediting the various accounts.

When looking to see if I could find any clever tips for remembering these dreaded concepts, I came across shops – Dorothy Perkins (Debit Prepayments), C&A (Credit Accruals). This is helpful, although it may be worth trying to remember other items – find your interest and try and link it in – this works for me as I love to shop!

As an exam tip I would suggest that you write DEAD CLIC at the top of your page and keep referring back to it; making little notes like this can help, and it never hurts to go back to the basics.

Accrued Expense:

This is effectively a liability because the business owes it. Therefore, it must build up on the CR side of the Accrued Expenses account (until it has been paid).

Accrued Income:

This is income that the business has earned but for which it has not yet raised a sales invoice or been paid (if it had, it would have been included in debtors or cash (Dr Debtors; Cr Sales or Dr Cash; Cr Sales). This is therefore an asset i.e. money that is owed to the business; therefore it builds up on the DR side of the Accrued Income account.

Prepayment of an Expense:

This is also effectively an asset, because the business has paid for something it has not yet received. Therefore, it must build up on the DR side of the Prepaid Expenses account.

Prepaid Income:

This is effectively a liability, because the business has not yet earned the value of the invoice that it sent out. For example: you receive a payment for rent in January, which relates to January, February and March. However, we haven’t reached February and March yet, therefore it must build up on the CR side of the Prepaid Income account.

Example 1:

Let’s go with an example and put this practice into place. You have been given the following information:

Sundry Income: there was an opening accrued balance of £550 on 1/1/2016 in the Sundry Income account. There have been receipts during 2016 of £6,300. These include £350 that relate to the first month of the following year.


Let’s start with what happened at the end of last year:

You had not yet raised an invoice for the Sundry Income of £350, therefore you needed to ‘Accrue’ for this by adjusting the Income (CR) side of the Sundry Income account. This provides us with the actual income for the year (in accounting terms) of £7,750:

Acrruals & Prepayments Example - T-account 1

Acrruals & Prepayments Example - T-account 2

At the start of the current year, you raise and are paid for this outstanding amount. Therefore, the bank receipts figure for 2016 of £6,300 includes £550 that relates to income earned last year (i.e. 2015). We therefore need to remove it from income in the 2016 accounts. This is done by transferring the balance on the accrued income account back to the Sundry Income Account. See below:

Acrruals & Prepayments Example - T-account 3

Acrruals & Prepayments Example - T-account 4

At the moment, the Accrued Income account has a Nil balance and the Sundry Income account has a balance of £5,750 (being the bank receipts of £6,300 less the receipts of £550 that relate to last year’s earned income.

Now let’s carry on with the rest of the year’s transactions:

We have been told  that the balance brought down as at 1.1.2016 is £550 (accrued), and that the balance carried down at 31.12.16 is £350 (prepaid) – these would both be entered on the Debit side of the Sundry Income account as above.

A prepayment is money which the business has received but not yet earned, so it also reduces the figure that will be entered on the Statement of Profit/Loss (because it doesn’t relate to this year’s accounts). We therefore need to transfer this prepayment to the Prepaid Income Account and then calculate the balancing figure for the Sundry Income Account. This is £5,400 on the Debit side and so the other side of the double entry will be a Credit in the Statement of Profit/Loss (i.e. Income).

Acrruals & Prepayments Example - T-account 5

Acrruals & Prepayments Example - T-account 6

I hope this has helped – look out for Accruals and Prepayments Part 2 next week.

In the meantime, happy studying!

Dissenters Cemetery in Exeter

A Grave Situation for Exeter Dissenters!

FAO Exeter Dissenters – our Blogs are, understandably normally about accounting. However, I have been reliably informed that there is more to life than accountancy. I know that this is hard to believe, but I try to be open minded!?!

We therefore thought it would be good to add the occasional blog about something else.

Our main office is in Exeter. Like many English cities, it has a medieval core, albeit much of it was destroyed in the Baedeker Bombings of the 2nd World War. However it has a much longer history, predating the fortification of the city by the Romans (who named it ISCA) in around 55AD.

I was taking a lunchtime constitution the other day as part of my New Year’s Resolutions and whilst walking to see Bull Meadow, I passed a small, walled, graveyard. There was a plaque on the wall that explained it as being The Dissenters Graveyard 1748 – 1854. I stopped to learn more.

“Dissenters” was a term used from the 17th Century onwards to describe those English Protestants who did not accept the authority of the Church of England. They formed separate congregations, often referred to as “Meetings”. They also rejected the Book of Common Prayer. As this was a requirement for Anglican burials, the Dissenters had to establish burial grounds of their own.

In 1747, three local Meetings leased land near Bull Meadow for such a graveyard, with the first burial being of Mary Green (the Minister’s wife), in 1748.

Overall, there were nearly 2,000 burials there, with the last burial being that of Emma Tompson in 1854. The site was owned by the Dissenting groups until the mid-1980s. Since then, it has passed through the hands of a number of property developers. However, the council refused to allow planning permission which has allowed it to have been acquired (quite recently), by the Exeter Dissenters Graveyard Trust.

After the restoration of Charles II, it was difficult for Dissenters to enter the established professions, so many of them entered commerce, industry and the sciences. Occupants of the graveyard include wool and cloth merchants, a banker, two lawyers and five accountants.

Arguably, (by their insistence on freedom of expression and belief), the Dissenters have played a major part in establishing the freedoms most of us enjoy today. In the early 19th century, Dissenters made up nearly 40% of the Protestant population in Exeter and so they were a significant minority.

100 yards further down the lane, lies a dedicated Jewish graveyard, also now owned by the local Jewish Community (purchased in 1977 for £750).

The preservation of both of the above sites was only made possible by the willingness of Exeter City Council to refuse planning permission for exhumation and re-development and to allow the sale of the freeholds to the supporting charities. I find it encouraging to see the long history of tolerance that recognises the rights of peoples within a community to hold different beliefs, to maintain their individual identity but still be part of that community.

When drafting a set of financial statements, although they are all governed by a single community (a set of Financial Reporting Standards), it is our job as accountants to ensure that each set of accounts properly reflects the individual nature of the business or organisation for which the accounts are reporting.

It is interesting to note that the original purchases of the land for the above graveyards all seemed to be for leasehold, not freehold. If an organisation owns the leasehold of a graveyard, I suppose establishing an amortisation policy could have two meanings!?!

P.S. When going out at lunch today – have a look at what historical legacy you are walking past.

You can find more information on the Dissenters Cemetery here

BLOG Was it Friday 13th last week, or is it today

Wasn’t It Friday 13th Last Week?!!!

Was It Friday 13th Last Week, Or Is It Today?!!!

Friday 20th January is the day when, every 4 years at 12.00 noon, the inauguration is held for the President of the United States of America.

The swearing-in ceremony takes place at the U.S. Capitol and is organized by the Joint Congressional Committee on Inaugural Ceremonies. It is usually followed by a parade along Pennsylvania Avenue.

The US inauguration has been held on the 20th January since the second term of Franklin D Roosevelt in 1937. Prior to this, they had been held on 4th March since George Washington took office for the second time, in 1793, having been first inaugurated on April 30th 1789, as the first President of the USA.

Americans to achieve political autonomy

It is also interesting to note that on January 21st in 1793,  Louis XVI of France was executed. The two events (i.e. the achievement by America of Independence from the British Crown and the French Revolution) were closely linked by the philosophy that underpinned the former. The success of the Americans to achieve political autonomy, inspired the French people to aspire to the same independence. The previous French support for the American war of independence had also put them into serious debt, undermining the French economy and providing the seedbed for revolution.

At the time of the American Revolution, there were 20 British colonies. However, only 13 supported the revolution. Those in current Canada resolutely maintained their neutrality, despite American overtures and in fact a failed invasion by them of Quebec. The American Revolution was also a civil war and over 100,000 loyalists fled as a result of it, mainly to Canada.

Ideas are powerful

The philosophy of the time was much influenced by the English philosopher, John Locke (1632 to 1704). Locke propounded a theory of natural rights, arguing that governments had obligations to their citizens and could ultimately be overthrown by those citizens under certain circumstances. Interestingly, Locke’s father served with the Parliamentary forces in the English Civil War. Ideas are powerful. Fortunately these days, with universal suffrage we are able to have elections instead of revolutions to achieve these results. With a set limit on the term of any government with the requirement for a subsequent populist vote, the need for revolution is hopefully replaced by the right to vote.

Financial Reporting  Standards Provide Consistency

2016 was perhaps a vivid example of this and perhaps Friday 20th January is a chance to reflect on this.  Things continually change, but if something works why change it. Double entry bookkeeping was “invented” in 1494 but is still with us today. Accountancy is a universal language, and financial reporting standards are international. They provide consistency across the globe and a common financial language for all peoples. Bravo Luca Pacioli!

Trump that!?!

You can read more about US Presidential Inuaguration here


Markup vs Margin BLOG

How to Calculate Margins and Markups

Do you confuse your Margins and Markups? Do you know what they are?

People often get confused between margins and markups and sometimes incorrectly use them interchangeably. Hopefully the explanation below will help.

For Example:

You buy baked beans from your supplier for £0.50 per can.

You sell them for £1.00


This is a mark-up of £0.50

This can also be expressed as a mark-up of 100% i.e. you have added a profit of £0.50 (100% of the original cost).


Your profit of £0.50 is 50% of the sales price

This can be expressed as making a margin of 50%


Most retail and wholesale businesses will operate in this way. A shopkeeper will have a range of markups depending on the types of goods that they are selling.

Luxury goods typically have a much bigger mark up.

Quite often the supplier will suggest a mark-up by showing on their invoice the recommended retail price, but then deducting a trade discount. The trader can simply add the trade discount back when pricing up the goods.

For Example:

A baked bean supplier might show on their invoice to the shop:

Margins & Markups BLOG Example 1

We express margin and markup in percentage terms.

Let’s look at this in terms of the annual trading account,
(for ease, we’ll assume that opening stock and closing stock are the same).

Margins & Markups BLOG Example 2


The Markup = C / B  i.e. 60,000/60,000 x 100 = 100%

(We have marked up the cost of goods sold of £60,000 by 100% to arrive at our sales figure of £120,000)


The Margin = C / A  i.e. 60,000/120,000 x 100 = 50%


Here are a range of margins and markups for you to see the inter-relationship between them – and to practice your algebra!!

Margins & Markups BLOG Example 3


We hope this makes the difference between your margins and markups clearer for you.

2017 goals

New Year’s Resolutions 2017 – What’s On Your Bucket List?

How long do your New Year’s Resolutions last?

Each year we come up with lots of New Year’s resolutions such as starting a diet, going to the gym to get fit, planning that dream holiday, buying a new house, getting your life out of a rut by training towards a new career, and so on. But how long do these good intentions go on for? A month or so if we’re lucky!

I was no different – during one family Christmas gathering (9 of us), we all decided to write down our New Year’s resolutions and put them into a sealed envelope to be reviewed again the following year – you can probably guess how successful we all were… we had stuck to very few of the things we had felt so strongly about the year before.

Do you have a vision board?

What can we all do to help us stick to the plans and goals we set for ourselves? Well, a while back I heard about ‘Vision Boards’ – a largish (at least A3) board where you pin or stick images and messages that focus on how you want to feel, not just pictures of the material things that you want (although these can definitely go on there too) – see example below.

Vision Board Example

Visualisation exercises to improve your performance

Now this might all sound a bit ‘namby pamby’ but in fact, there is a simple explanation about why these work so well – it is all about ‘visualisation’.

Having a vision board in a space where you frequently see it, means that you are essentially doing short visualisation exercises every day. It is common knowledge that Olympic athletes having been using visualisation techniques for decades to improve performance. Psychology Today1 reported that the brain patterns activated when a weightlifter lifts heavy weights are similarly activated when the weightlifter just imagined lifting heavy weights – wow!

So what should go onto a vision board?

Anything that inspires and motivates you – think about what your goals are in the following areas: relationships, career, finances, home, travel, personal growth. Images could include pictures of your loved ones with hand written messages about how you feel (or want to feel) about your relationships with them; would you like a family holiday next year? Research where you want to go and put a photo of your holiday destination on the board (it must be specific though e.g. a photo of the hotel that you will be staying in). Do you want a new car? Which model? What colour? Put a photo of it on the board. If you want a career change, think about why you want it; how will it make you feel to have achieved it – write a message etc.

I now have a vision board (not the one shown above!) and it is truly amazing how it can focus your mind on all the goals you want to achieve – why not give it a go; you’ve got nothing to lose, and just maybe….


Seeing is believing!


Emily's Santa Abseil

Emily’s Christmas Charity Abseil

I don’t like heights. I don’t do adventure sports. I do not see the fun in teetering over the edge of the building on a rope. So, when I saw a sponsored abseil from the roof of a multi storey car park advertised, I of course thought I should take part. And then I thought I shouldn’t’. I registered whilst at my desk and Jodie will confirm my levels of wavering, self-convincing, sudden dawn of realisation and whinging “but I really don’t want to do it!”

My only experience of abseiling is when I was 11 and on a school residential adventure course. I hated it. I have memories of being forced over this cliff against my will. I cried all the way down. I lost my footing. It was the worst “sport” I have ever attempted. It has left me with no desire to ever do it ever again.

So, why am I doing it? I completed a charity skydive a few years ago, and honestly, I was really excited about it (I do understand it seems strange I was happy to do that and not this, but I didn’t actually have to throw myself from the plane, someone does that bit for you.) Since then, I feel like I have needed to do something for charity that I actually didn’t want to do, and therefore more deserved of sponsorship. I don’t support people asking for sponsorship for running half marathons when they go running all the time and love doing it – where is the trial and tribulation on their part? I therefore hope if people are aware this really is an effort for me, I can raise that little bit more for charity.

The charity in question is an excellent one; YMCA Exeter. They help young people facing homelessness amongst other problems such as abuse and neglect, aiming to provide them with support to ensure they have a promising future. There is a sad case of homelessness in Exeter which can’t be ignored by those of us living and working here, so if young people can be supported and given a safe place early on, hopefully they won’t find themselves in that position in the years to come, and can be the awesome members of society they have the potential to be.

Save 3rd December in your diary!

My abseil is confirmed for 10am on the 3rd December, where I will be descending Princesshay car park in central Exeter.  Oh, and I forgot the mention – I will be in a Santa suit! (as much as I don’t want to abseil I do like any excuse for a bit of dressing up so I’m clinging onto this factor). If you are in the area, do come along and show your support to not only me, but the 59 other people just as mad who will put their life in a rope, throughout the day.

If you would like to sponsor me and help some deserved young people get a better life (and make me more convinced leaning backwards over a building is worthwhile), you can go to my JustGiving page

More about the YMCA in Exeter

More about YMCA Exeter can be found at and there may still be spots for you to sign up yourself!

Thank you for your support and wish me luck!


BLOG Colosseum: revaluation of asset previously impaired

Is Your Understanding of the Treatment of Revaluations “Impaired”?

Here’s a question for AAT Level 4 (Professional Stage) Students:

“Is a revaluation gain included in the P&L to the extent that an asset was previously impaired, with any further gain being recognised in the revaluation reserve?”
(27 words)

Answer 1. Yes
(1 word)

Answer 2
(324 words!)

The reason is that:

  • Because the previous impairment was written off Reserves, any increase in value, up-to the original cost (i.e. to the amount of the impairment) will be added back to Reserves. This will leave the financial position as it was before the impairment.
  • The impairment was a reduction in realised (and therefore distributable (as dividends)) reserves
  • The increase up to cost, is therefore an increase in realised reserves
  • Any increase in value beyond this (i.e. above original cost) will be transferred to the Revaluation Reserve (unrealised and un-distributable)

Watch out in the office though as the position under FRS102 can be different for Investment Properties where the revaluation goes straight to Revenue Reserves. (Mind you, they are still not distributable and so you need to keep a separate note to know what can be paid out as dividends and what can’t be).

However, don’t worry about this as it is beyond the current AAT syllabus. They will need to tackle FRS102 next September probably. For more information on FRS102, click here.

With reference to my first point above, it is a little akin to the treatment of Capital Allowances and Capital Gains Tax.

Buying Plant and Equipment

When you buy plant and equipment you will claim initial investment allowances (capital allowances). This will reduce the written down value of the assets for tax purposes by the amount of the capital allowances.

If you subsequently sell the assets:

  • For less than the WDV (Written Down Value), you claim a Balancing Allowance
  • For more than the WDV (Written Down Value), you pay a Balancing Charge

However the Balancing Charge is limited to the amount of Capital Allowances that you have claimed.

The maximum Balancing Charge is = Cost – WDV

If you sell the asset for more than Cost, then the excess over Cost is subject to Capital Gains Tax

As with the valuation example, you need to be aware of the original cost and therefore need to keep sufficient records to evidence this.

If you have any further questions on this, please email


AAT GoTheDistanceFinal

The FINAL AAT #GoTheDistance Challenge Round Up

This October, the AAT have been running their #GoTheDistance challenge to encourage and motivate their distance learning students with tips, tricks and simple daily challenges that will reinvigorate your enthusiasm for your studies!

Here at Accountancy Learning we also understand the difficulties distance learners can face, and so we have provided comprehensive week-by-week round ups of the content for you. As October draws to a close, so does the challenge, and here is your final round up email! The articles below contain some really insightful and inspiring content to ensure your study sessions are as productive as possible:

Finding Courage Even When You’re Scared

–  How to Stop Comparing Yourself to Others

From Study to Real World

– How to Hold Yourself Accountable to Your Goals

Common Challenges for Distance Learners and How to Overcome Them

The Power of Momentum

Knowing When to Ask For Help

– How Success Starts with Failure

Achieving the Success You Deserve

– 10 Ways to Reward Yourself For Your Hard Work


If you find yourself wanting to revisit any of the previous Go The Distance articles you can always search the #GoTheDistance hashtag on Twitter or Facebook or this blog

Happy studying and well done for completing the challenge! 🙂

AAT GoTheDistance Week3

AAT Go The Distance Challenge Week 3 Round Up

As you should know by now, this October, the AAT are running their #GoTheDistance challenge. The aim is to encourage and motivate their distance learning students with tips, tricks and simple daily challenges that will reinvigorate your enthusiasm for your studies!

Here at Accountancy Learning we also understand the difficulties distance learners can face, and so we have provided a comprehensive round-up of Week 3 of the #GoTheDistance challenge for you! The articles below contain some really insightful and inspiring content to ensure your study sessions are as productive as possible:

Brain Food

How to Cope With Anything

8 Life Changing Apps

Practice Creates Confidence

How to Get Motivated When it Seems Impossible

Stop Hilighting, Start Using Flash Cards

Be Cool as a Cucumber


So throw away those highlighters and get yourself into the kitchen! Why not share what you rustle up with us and your fellow students, on the #GoTheDistance hashtag on Twitter or Facebook

Happy studying! 🙂

Apprenticeship Training Update

Apprenticeship Update Report to ICAEW South West

Apprenticeship Structures

The structure of Apprenticeships, nationally, are currently being redesigned and the Accounting Profession is in the forefront of this (Trailblazer Apprenticeships).

The following Standards have recently been introduced:

  • Assistant Accountant Apprenticeship (Level 3. “Advanced”)
  • Professional Accounting Technician Apprenticeship (Level 4. “Higher”)
  • Professional Accountant Apprenticeship (Level 7. “Professional”)
    Apparently currently only available in Wales….????

There will no longer be a Level 2 Apprenticeship; any Level 2 training needed will have to be integrated into a Level 3 or Level 4 Apprenticeship. The new funding mechanism should cater for this.


Assessment of these Apprenticeships will by an “End Point Assessment”. This will include two elements:

  1. A Portfolio of personal skills, including a Reflective Statement, for which evidence will be obtained from the workplace over the last 6 months of training (60%)
  2. A “Role Simulation” (40%). This should be a sort of case study, or scenario, that requires an apprentice to display the knowledge obtained over their apprenticeship.
    Apprentices will be prepared for this via the completion of the exams included in the mainstream qualifications offered by the Professional Bodies.

These will generally be:

  • For the Level 3 Apprenticeship: AAT Level 3 (and possibly some/all of Level 2)
  • For Level 4: AAT Level 4 or ACA CFAB (or both??)
  • For Level 7: ICAEW, ACCA, CIMA, CIPFA

However, these exams are not mandatory, only recommended. The only mandatory element will be the “End Point Assessment”

It also doesn’t matter which qualifications you do. One could sit the AAT’s level 4 “End Point Assessment” (including their synoptic exam) but sit the CFAB exams along the way.

Upon completion of the ICAEW level 7, apprentices (in Wales??) will be awarded:

  • The ICAEW ACA qualification
  • Level 7 Diploma in Professional Services
    (Audit & Accountancy Practice) or (Tax), depending on the pathway followed.

Assessment plans have been approved for the Advanced and Higher Apprenticeships. I am not sure about the Professional yet.

As now, Apprenticeships must last at least 12 months, and the “end of programme assessment” cannot be completed until after 12 months. Although this could be a problem with the current structure of Levels 2, 3 and 4, it will hopefully be less of one, where one is combining Level 3 with parts of Level 2 and Level 4 might include progress on to a non-apprenticeship route or into Level 7, or might include AAT and CFAB.

Funding and funding mechanisms:

  1. Employers with payroll costs > £3 Million p.a. will pay a levy of ½% via the PAYE system into a digital apprenticeship account.
  2. They can then use this to contribute to any apprenticeship training purchased. If not used these funds will “expire” and so there is therefore a clear incentive to employ apprentices. “Use it or lose it”
  3. The government will provide a “top-up” of 10% (I think!)
  4. Employers with payroll costs < £3 Million pa will not pay the Employer Levy but will pay training providers directly for their training
  5. Although originally anticipated that the government will contribute £2 for every £1 paid by small employers, this has now increased to £9 for every £1, with a £9,000 cap for Levels 3 / 4 and £27,000 for Level 7.
  6. For apprentices aged 16-18 the government will pay small businesses a wage subsidy – currently proposed as £1,000 each to the employer and the training provider.

All of the above is still subject to revision, so watch this space! Final rules should be published in October.

As per the website:

“In October 2016 there will be information about apprentices starting from May 2017, including:

  • final levels of:

government support
additional support for 16- to 18-year-olds
English and maths payments

  • final detailed funding and eligibility rules

If you have any questions, do please contact me at

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