Hi
Please help.

Let us say that an invoice has been received for, say, insurance. The amount is 120,000 from 1 September 2009 to 31 August 2010. The year-end is 30 September.

1) The invoice was entered into the general ledger before year-end as follows:-
DR Insurance (P&L) 120,000
CR Vendor (BS) 120,000

The invoice was entered before 30 September 2009, but not paid until after.
At year-end, is it correct to book a prepayment journal as follows :-
DR Prepayment 110,000 ( 11 of 12 months worth to 31 August 2010)
CR Insurance (P&L) 110,000

If it is not correct, please show what it should be ( perhaps an offset to reduce the vendor control account, thus reducing creditors?).

If it is correct, does it make a difference if the invoice was paid prior to year-end? Please show clearly.

2) If the invoice was not received until after 30 September and therefore not paid until after that, is it correct to accrue for 1 month's of insurance as follows :-
DR Insurance (P&L) 10,000
CR Accruals (BS) 10,000