Accruals, outstanding expenses and prepaid expenses

The accrual principle

Expenses and income belong to the period in which they are incurred or earned, whether or not paid or received.

Outstanding (accrued) expenses

March electricity bill of ₹12,000 arrives in April:

Electricity A/c                 Dr  12,000
    To Outstanding Expenses A/c        12,000   (current liability)

When paid in April: Dr Outstanding Expenses, Cr Bank.

Prepaid expenses

Insurance of ₹24,000 paid on 1 January for 12 months; at 31 March, 9 months are for next year:

Prepaid Insurance A/c           Dr  18,000      (current asset)
    To Insurance A/c                   18,000

Accrued income

Interest of ₹8,000 earned on an FD up to 31 March but credited in April:

Accrued Interest A/c            Dr   8,000
    To Interest Income A/c              8,000