Accounting treatment for accruals and prepayments at the end of the year

Hello again!

Sorry, if I’m using this forum a bit too much, but I need to close my books for the period, and I was reading the guide that’s provided for it, and I’m a bit confused with the following line:

I’m not exactly sure what the necessary adjusting entries are. At the moment, I pass the following (for example for a prepayment) entries manually for each prepayment:

Payment - [Date of Payment]:Expense a/c Dr [full amt], Bank a/c Cr [full amt]
Journal Entry - 31 March: Other receivables a/c Dr [prepaid amt], Expense a/c Cr [prepaid amt]
Journal Entry - 1 April: Expense a/c Dr [prepaid amt], Other receivables a/c Cr [prepaid amt]

Another process I have tried is as follows:
Journal Entry - [Date of Payment]:Expense a/c Dr [amt allocated to current financial year], Other Receivables Dr [prepayment], Creditor a/c Cr [full amt]
Journal Entry - 1 April: Expense a/c Dr [prepaid amt], Other receivables a/c Cr [prepaid amt]

This way, I basically write the whole amt off as an expense at the time of purchase, and then when it comes to close the books (an accounting year end of 31st March), I transfer the amount to an asset a/c. Then, the day after the last day of the year, and thereby after the reports have been generated, I move the prepayment back to the expense a/c so that it can be written off in the new year.

Again, really sorry for the confusing post. Please ask if you need any clarification. TIA!

This is really beyond the scope of this Forum, because it is about fundamental accounting, not how to use Manager. Basically, however, you should not be moving amounts back and forth. And receivables should not be coming into play at all.

Create a new asset account: Prepaid expenses. Post your initial payment there. This is equivalent to debiting Prepaid expenses and crediting your bank account.

Every financial period, use a journal entry to transfer that period’s portion of the expense to the relevant expense account. Debit the expense account and credit Prepaid expenses. When the time period covered by the prepayment runs out, the Prepaid expenses account will be empty. And P&L reports for each period will show only the expenses applicable to that period.

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What you’ve just said makes way more sense than what I was planning. Thank you! Maybe I’ll make Prepaid expenses a group of accounts, and then list all the different prepaid expenses as accounts under that.