In business accounting, timing is everything. Recognizing income and expenses in the correct accounting period is crucial for preparing reliable financial statements. Two important accounting adjustments that make this possible are accruals and prepayments.
At Niti Neeyam Services, we provide expert support in managing accruals and prepayments to ensure that your books of accounts reflect the true financial performance of your business.
What Are Accruals?
Accruals are accounting adjustments made for revenues or expenses that have been earned or incurred but not yet recorded in the books.
For example, if your business received a service in March but the invoice arrives in April, the expense must still be recorded in March under the accrual principle.
Types of Accruals:
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Accrued Income – Income earned but not yet received
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Accrued Expenses – Expenses incurred but not yet paid
Accruals ensure that income and expenses are matched in the same accounting period, providing a true picture of profitability.
What Are Prepayments?
Prepayments refer to expenses paid in advance for goods or services that will be received in the future.
For example, rent paid for the next six months is treated as a prepayment. Only the portion that applies to the current accounting period is recorded as an expense.
Examples of Prepayments:
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Prepaid Rent
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Prepaid Insurance
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Advance Subscription Payments
Proper management of prepayments prevents overstatement or understatement of expenses.
Why Accruals and Prepayments Are Important
Accruals and prepayments are essential for businesses that follow the accrual basis of accounting. They help in:
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Ensuring accurate profit and loss reporting
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Maintaining compliance with accounting standards
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Improving financial analysis and forecasting
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Supporting accurate tax computation
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Enhancing transparency for audits and stakeholders
How Niti Neeyam Services Can Help
At Niti Neeyam Services, our team of accounting professionals ensures accurate recognition and adjustment of accruals and prepayments. We provide:
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Preparation of adjusting journal entries
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Accurate classification of accrued and prepaid accounts
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Integration with Tally for automated adjustments
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Period-end reconciliation and reporting
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Audit and compliance support
Our goal is to help businesses maintain clean and reliable financial records that support smarter decision-making.
Conclusion
Accruals and prepayments may seem like small adjustments, but they play a big role in accurate financial reporting. By properly managing these entries, businesses can ensure that their statements truly represent their financial health.
With Niti Neeyam Services, you can count on professional accounting solutions that keep your business books accurate, compliant, and ready for growth.
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