End-of-period transfers, accruals and prepayments in the ledger

Transfers to the statement of profit or loss

Under the accruals concept, the statement of profit or loss shows the income earned and expenses incurred for the period, not the cash paid or received.

• Expense account: the transfer is a credit 'Statement of profit or loss' (the debit is in the statement).
• Income account: the transfer is a debit 'Statement of profit or loss'.

After the transfer, any balance left is an amount owing or paid in advance and appears in the statement of financial position.

Expense accounts

• Accrued expense (owing at the year end): carried down as a credit balance (other payables, a current liability). In the account, Balance c/d is on the debit side.
• Prepaid expense (paid in advance): carried down as a debit balance (other receivables, a current asset).

Charge for the year = paid + closing accrual - opening accrual, or paid + opening prepayment - closing prepayment.

Electricity account: charge £4,350

Income accounts

• Accrued income (earned but not yet received): a debit balance (other receivables).
• Income received in advance: a credit balance (other payables).

Rent receivable account: income £4,500

Worked example

Insurance was prepaid by £400 at the start of the year. £2,800 was paid during the year and £700 is prepaid at the end. Prepare the insurance account.

1. Opening prepayment: debit Balance b/d 400.
2. Payment: debit Bank 2,800.
3. Closing prepayment: credit Balance c/d 700.
4. Transfer (balancing figure): credit Statement of profit or loss 2,500.

Answer: Insurance charged £2,500; prepayment £700 (debit balance b/d, other receivables).

Check yourself

1. Rent paid in the year was £9,600. At the start of the year rent of £800 was prepaid; at the end, £1,200 is owing. Find the rent charged to the statement of profit or loss.
   Show answer

   £11600. 9,600 + 800 (prepaid last year, used this year) + 1,200 (owing) = 11,600.

2. Commission received in cash was £3,100. £250 was owing to the business at the start of the year and £400 at the end. Find the commission income for the year.
   Show answer

   £3250. 3,100 - 250 (belongs to last year) + 400 (earned, not yet received) = 3,250.

3. An annual insurance premium of £3,600 is paid on 1 October for the following 12 months. The year ends on 31 December. Find the prepayment at 31 December.
   Show answer

   £2700. 9 of the 12 months (January to September) belong to next year: 3,600 x 9/12 = 2,700.

4. Wages owing at the year end are shown in the statement of financial position as
   • a current asset (other receivables)
   • a non-current liability
   • a deduction from capital
   • a current liability (other payables)
   Show answer

   a current liability (other payables). Wages owing are an amount the business must pay soon.

5. An insurance account has a closing prepayment. On the first day of the next year, the balance b/d is
   • a credit, shown as other payables
   • a debit, shown as other receivables
   • a debit, shown as an expense of the old year
   • a credit, shown as income
   Show answer

   a debit, shown as other receivables. A prepayment is an asset: the business has paid for cover it has not yet used.

6. When an expense account is closed at the year end, the transfer to the statement of profit or loss is entered in the expense account on the
   • debit side
   • side with the larger total
   • side with the Balance b/d
   • credit side
   Show answer

   credit side. The expense is moved out of the account (credit) and into the statement of profit or loss (debit).

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (issue 2), Unit 1 and Appendices 6 to 8

Last updated 8 November 2026. Spotted a mistake? Tell us.