Other payables and other receivables

• The matching principle: income and expenses are recorded in the period they relate to, whether or not cash has changed hands.
• An accrued expense (owing at the year end) is added to the expense and shown as an other payable.
• A prepaid expense (paid in advance) is deducted from the expense and shown as an other receivable.
• An accrued income (earned but not received) is an other receivable; a prepaid income (received in advance) is an other payable.

The year’s charge, not the year’s cash

The matching principle says that the revenue of a period is matched with the expenses incurred in earning it in that same period. Cash paid and received during the year is therefore adjusted at the year end:

Balance c/d on the side that keeps the charge right

In an expense account the transfer to the income statement is the charge for the year. An accrual is carried down as a credit balance (a liability); a prepayment is carried down as a debit balance (an asset).

Worked example 1: accrued expense

During 2025 a business paid $3,400 for electricity. At 31 December 2025 $450 was owing. Prepare the electricity account.

Worked example 2: prepaid expense

During 2025 rent of $7,800 was paid, including $600 for January 2026. Prepare the rent payable account.

Worked example 3: opening and closing balances

On 1 January 2025 rates of $300 were owing. During 2025 $4,100 was paid. At 31 December 2025 rates of $500 were prepaid. Prepare the rates account.

Check: charge = paid 4,100 − last year’s accrual 300 − this year’s prepayment 500 = $3,300.