{"id":92,"date":"2022-02-16T13:07:00","date_gmt":"2022-02-16T13:07:00","guid":{"rendered":"https:\/\/www.thetrainingplace.org\/blog\/2022\/02\/16\/prepaid-income\/"},"modified":"2025-06-30T12:39:23","modified_gmt":"2025-06-30T11:39:23","slug":"prepaid-income","status":"publish","type":"post","link":"https:\/\/www.thetrainingplace.org\/blog\/2022\/02\/prepaid-income\/","title":{"rendered":"Prepaid Income"},"content":{"rendered":"<p>&nbsp;<\/p>\n<div style=\"clear: both; text-align: center;\"><a style=\"margin-left: 1em; margin-right: 1em;\" href=\"https:\/\/blogger.googleusercontent.com\/img\/a\/AVvXsEie-5WIxnDlhMrnvdadvACeuP4raFThWSOzamFfHDS9-4Ayj_BpF_w3hLtgf3ie7S_xTANfmmEGC6eF4KlR7IVv-QIDw4PmakbQfk7MkNFMFLgOL9p4pc5RXsVf3_O_Cv-IfDeUgeHvu6BUW10-nKHdSyhGomcUrz3_MDqg-EH2ebwvVyHVL6F0nZoM=s506\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/blogger.googleusercontent.com\/img\/a\/AVvXsEie-5WIxnDlhMrnvdadvACeuP4raFThWSOzamFfHDS9-4Ayj_BpF_w3hLtgf3ie7S_xTANfmmEGC6eF4KlR7IVv-QIDw4PmakbQfk7MkNFMFLgOL9p4pc5RXsVf3_O_Cv-IfDeUgeHvu6BUW10-nKHdSyhGomcUrz3_MDqg-EH2ebwvVyHVL6F0nZoM=w542-h103\" width=\"542\" height=\"103\" border=\"0\" data-original-height=\"96\" data-original-width=\"506\" \/><\/a><\/div>\n<p><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt;\">Prepaid income is an amount received in advance for a sundry income which relates to an accounting period after the year end.<\/span><\/p>\n<p><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt;\">In accounting for prepaid income, the effect that needs to occur will be to reduce the overpayment in income in an attempt to account for only the income earned in that accounting period and then to increase the liability in that accounting period, recognising that the business acts as a custodian of that amount paid in advance, so it should not be accounted for as income, rather it is a liability in the hands of the business until it earns that amount of money.<\/span><\/p>\n<div style=\"clear: both; text-align: center;\"><a style=\"margin-left: 1em; margin-right: 1em;\" href=\"https:\/\/blogger.googleusercontent.com\/img\/a\/AVvXsEjWgixFh8Zz79scfyKXDUQHP7o6O0sM-0rvhMfccpZYPALO2YgRGF7DLHdb2r8sNNbzFUTiVYNH9q17CBhy4CBRHoRk2HP8vb33s_qqg6h-lqSRlfCEaP_Q9kfFeLWbAxcvbTJwSsQPlqkP2LKoGKLpXhPi8oj01mDLkjNZwEho9IbMnXLd8M_ZYDtZ=s666\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/blogger.googleusercontent.com\/img\/a\/AVvXsEjWgixFh8Zz79scfyKXDUQHP7o6O0sM-0rvhMfccpZYPALO2YgRGF7DLHdb2r8sNNbzFUTiVYNH9q17CBhy4CBRHoRk2HP8vb33s_qqg6h-lqSRlfCEaP_Q9kfFeLWbAxcvbTJwSsQPlqkP2LKoGKLpXhPi8oj01mDLkjNZwEho9IbMnXLd8M_ZYDtZ=w595-h104\" width=\"595\" height=\"104\" border=\"0\" data-original-height=\"117\" data-original-width=\"666\" \/><\/a><\/div>\n<p><b><span style=\"font-family: 'Times New Roman',serif; font-size: 14pt; line-height: 115%;\">Example:<\/span><\/b><\/p>\n<p><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt;\">You are working on the accounting records of a manufacturing business for the year ended 30 June 20X6. You are looking at the rental income for the year and this shows receipts for the following periods:<\/span><span style=\"font-family: 'Times New Roman',serif; font-size: 10pt;\">\u00a0<\/span><\/p>\n<table style=\"border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-border-insideh: .5pt solid windowtext; mso-border-insidev: .5pt solid windowtext; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;\" border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr style=\"mso-yfti-firstrow: yes; mso-yfti-irow: 0;\">\n<td style=\"border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 231.05pt;\" valign=\"top\" width=\"308\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">July 20X5 \u2013 July 20X6<\/span><\/td>\n<td style=\"border-left: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 79.15pt;\" valign=\"top\" width=\"106\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\"><span style=\"mso-spacerun: yes;\">\u00a0\u00a0 <\/span>\u00a31,105<\/span><\/td>\n<\/tr>\n<tr style=\"mso-yfti-irow: 1; mso-yfti-lastrow: yes;\">\n<td style=\"border-top: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 231.05pt;\" valign=\"top\" width=\"308\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">July 20X5 \u2013 September<br \/>\n20X6<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 79.15pt;\" valign=\"top\" width=\"106\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\"><span style=\"mso-spacerun: yes;\">\u00a0\u00a0 <\/span>\u00a31,590<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt;\">\u00a0<\/span><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%; mso-bidi-font-family: 'Times New Roman'; mso-bidi-theme-font: minor-bidi;\">Calculate the value of the adjustment required for the rental income account as at 30 June 20X6 and show the journal entry needed for the relevant adjustment.<\/span><\/p>\n<p><b><span style=\"font-family: 'Times New Roman',serif; font-size: 14pt; line-height: 115%; mso-bidi-font-family: 'Times New Roman'; mso-bidi-theme-font: minor-bidi;\">Solution:<\/span><\/b><\/p>\n<table style=\"border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-border-insideh: .5pt solid windowtext; mso-border-insidev: .5pt solid windowtext; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;\" border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr style=\"mso-yfti-firstrow: yes; mso-yfti-irow: 0;\">\n<td style=\"border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 231.05pt;\" valign=\"top\" width=\"308\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">\u00a0<\/span><\/td>\n<td style=\"border-left: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 79.15pt;\" valign=\"top\" width=\"106\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">\u00a0<\/span><\/td>\n<td style=\"border-left: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 108.35pt;\" valign=\"top\" width=\"144\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">Prepaid<br \/>\nincome<\/span><\/td>\n<\/tr>\n<tr style=\"mso-yfti-irow: 1;\">\n<td style=\"border-top: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 231.05pt;\" valign=\"top\" width=\"308\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">July 20X5 \u2013 July 20X6<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 79.15pt;\" valign=\"top\" width=\"106\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\"><span style=\"mso-spacerun: yes;\">\u00a0\u00a0 <\/span>\u00a31,105<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 108.35pt;\" valign=\"top\" width=\"144\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">\u00a31105\/13&#215;1=<br \/>\n\u00a385<\/span><\/td>\n<\/tr>\n<tr style=\"mso-yfti-irow: 2;\">\n<td style=\"border-top: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 231.05pt;\" valign=\"top\" width=\"308\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">July 20X5 \u2013 September<br \/>\n20X6<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 79.15pt;\" valign=\"top\" width=\"106\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\"><span style=\"mso-spacerun: yes;\">\u00a0\u00a0 <\/span>\u00a31,590<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 108.35pt;\" valign=\"top\" width=\"144\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">\u00a31590\/15&#215;3=\u00a3318<\/span><\/td>\n<\/tr>\n<tr style=\"mso-yfti-irow: 3; mso-yfti-lastrow: yes;\">\n<td style=\"border-top: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 231.05pt;\" valign=\"top\" width=\"308\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">Total prepaid income<br \/>\nadjustment needed<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 79.15pt;\" valign=\"top\" width=\"106\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">\u00a0<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 108.35pt;\" valign=\"top\" width=\"144\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 106%;\">\u00a31068+\u00a3330=\u00a3403<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-size: 14pt; line-height: 115%;\"><span style=\"mso-tab-count: 1;\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span><\/p>\n<table style=\"border-collapse: collapse; border: none; mso-border-alt: solid windowtext .5pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-yfti-tbllook: 1184;\" border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr style=\"mso-yfti-firstrow: yes; mso-yfti-irow: 0;\">\n<td style=\"border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;\" valign=\"top\" width=\"200\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">Account name<\/span><\/td>\n<td style=\"border-left: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 111.75pt;\" valign=\"top\" width=\"149\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">Amount<br \/>\n(\u00a3)<\/span><\/td>\n<td style=\"border-left: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.6pt;\" valign=\"top\" width=\"170\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">Dr\/<br \/>\nCr<\/span><\/td>\n<\/tr>\n<tr style=\"mso-yfti-irow: 1;\">\n<td style=\"border-top: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;\" valign=\"top\" width=\"200\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%; mso-bidi-font-family: 'Times New Roman'; mso-bidi-theme-font: minor-bidi;\">Rental income<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 111.75pt;\" valign=\"top\" width=\"149\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">403<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.6pt;\" valign=\"top\" width=\"170\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">Dr<\/span><\/td>\n<\/tr>\n<tr style=\"mso-yfti-irow: 2; mso-yfti-lastrow: yes;\">\n<td style=\"border-top: none; border: 1pt solid windowtext; mso-border-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 150.25pt;\" valign=\"top\" width=\"200\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">Prepaid income <\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 111.75pt;\" valign=\"top\" width=\"149\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">403<\/span><\/td>\n<td style=\"border-bottom: 1pt solid windowtext; border-left: none; border-right: 1pt solid windowtext; border-top: none; mso-border-alt: solid windowtext .5pt; mso-border-left-alt: solid windowtext .5pt; mso-border-top-alt: solid windowtext .5pt; padding: 0cm 5.4pt; width: 127.6pt;\" valign=\"top\" width=\"170\"><span style=\"font-family: 'Times New Roman',serif; font-size: 12pt; line-height: 115%;\">Cr<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><a href=\"https:\/\/www.youtube.com\/watch?v=YaGpWtK_hJQ\">Prepaid Income &#8211; YouTube<\/a><\/p>\n\n\n<p><a href=\"https:\/\/www.thetrainingplace.org\/aat-level-3\">AAT Level 3 | The Training Place<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; Prepaid income is an amount received in advance for a sundry income which relates to an accounting period after the year end. In accounting for prepaid income, the effect that needs to occur will be to reduce the overpayment in income in an attempt to account for only the income earned in that accounting &#8230; <a class=\"read-more\" href=\"https:\/\/www.thetrainingplace.org\/blog\/2022\/02\/prepaid-income\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20,29,22],"tags":[],"class_list":["post-92","post","type-post","status-publish","format-standard","hentry","category-aat","category-financial-accounting-preparing-financial-statements","category-level-3"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Prepaid Income - The Training Place Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.thetrainingplace.org\/blog\/2022\/02\/prepaid-income\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Prepaid Income - The Training Place Blog\" \/>\n<meta property=\"og:description\" content=\"&nbsp; Prepaid income is an amount received in advance for a sundry income which relates to an accounting period after the year end. 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