When you enjoy the benefit of a cost which you haven't yet been billed for, you accrue that cost on your business's balance sheet. An accrual is a liability of the business. ... If your business is registered for VAT, then you always account for accruals net of VAT.
What is included in accrual expenses?
Examples of accrued expenses include:
- Utilities used for the month but an invoice has not yet been received before the end of the period.
- Wages that are incurred but payments have yet to be made to employees.
- Services and goods consumed but no invoice has been received yet.
Do you include VAT in prepayments?
A prepayment is a current asset of the business. At the time when you actually receive the service, the cost moves from the balance sheet to the profit and loss account, and becomes a day-to-day running cost of the business. If your business is registered for VAT, then you always account for prepayments net of VAT.
