Other Payables And Other Receivables

A business pays its bills on its own timetable, not the calendar's. The electricity bill arrives after the power has been used; a year's insurance is paid in one lump up front. So when the financial year ends, some expenses have been used but not yet paid, and some have been paid but not yet used. The same happens with income. If we simply counted the cash that changed hands, the profit would be wrong. Other payables and other receivables are the year-end adjustments that fix this, so each year is charged only with what truly belongs to it.

In this lesson you will apply the matching (accruals) concept to both expenses and income. You will learn to handle accrued expenses, prepaid expenses, accrued income and income received in advance, write up the ledger accounts that carry the balances forward, and place each balance correctly as a current asset or current liability. These adjustments are among the most reliable marks in the exam once the method clicks.