"It's an accounting thing, you wouldn't understand..."

[ctrlbrk]

There's a couple of accounting terms that keep tripping me up:

• Creditors: Amounts Falling Due Within One Year
• Accruals and deferred income

For last year's accounts for my LTD company I had paid my accountant's fee upfront. He put that fee under "Accruals and deferred income" which I thought made sense at the time.

Now, upon reviewing it all against some more formal definitions, it no longer makes sense to me.

I've looked up the definition for "Accruals and deferred income":

Companies House definition:
Accruals and deferred income

Income received relating to a subsequent accounting period.​

​

For micro-entity accounts, this is not required other than for the cost of raw materials and consumables, value adjustments, staff costs and tax.​

CH's definition is quite generic but it does say "subsequent accounting period", which would suggest the accountant was right to put it where he did, However I then found this in a UKBF post:

Accruals and deferred income - accruals are costs incurred in the period but not billed. Accounts must show all costs incurred in a period so you need to add payments, unpaid invoices and accrued amounts and deduct opening creditors and accruals to arrive at the cost for the year.

This definition is more specific, and it talks about "costs incurred in the period but not billed".

In my case the accountant's fee was 1) paid and billed upfront and 2) not incurred in the period (because the accountant always does your accounts when the accounting period is over), so I'm confused.

Also, "Accruals and deferred income" is a sub-item of "Creditors: Amounts Falling Due Within One Year" which, again, would suggest this accountant's fee is part of the debt my company owes, which is not the case because it was paid upfront.


Is it just accounting practice to do it like this, or is there something else going on?

Thanks for clearing up any confusion!

 

[Lisa Thomas]

one for @MyAccountantOnline

 

[Ziggy2024]

Normal practice is to accrue the accountancy fee as it will be billed afterwards. If the fee has been billed and paid in the current accounts period it will be in neither creditors nor accruals so I would review what is actually in those codes and the timing of the transactions.

To put it into figures and timings:

If they billed you in March 2025 and the accounts were prepared up to the end of March 2025 it would appear as a trade creditor (because it was still owed at 31March). This would be in creditors less than 1 year.

If you paid it prior to 31 March 2025, there is nothing outstanding therefore no creditor to show.

If they billed you in April 2025 it would be an accrual as it relates to March 2025 accounts but hasn't yet been invoiced.

 

[ctrlbrk]

If they billed you in April 2025 it would be an accrual as it relates to March 2025 accounts but hasn't yet been invoiced.

Thanks Ziggy2024 - I should say "clear as mud" but it's probably me being dumb.

By going with your example, let's say my account's year end was 31st March 2025 and I engaged the accountant in June 2025 (say). I paid his fee via his website and I got the payment receipt.

Would this be the "accrual" case you're referring to?

 

[Ziggy2024]

Thanks Ziggy2024 - I should say "clear as mud" but it's probably me being dumb.

By going with your example, let's say my account's year end was 31st March 2025 and I engaged the accountant in June 2025 (say). I paid his fee via his website and I got the payment receipt.

Would this be the "accrual" case you're referring to?

Yes.

Don't know if this will cause more confusion but creditors relate to the day to day transactions recording the invoices.

Accruals and prepayments are accounting transactions to match the period of the service.

In this case the invoice would be recorded in June 25 but it relates to March so we use an accrual to pull that into the correct period.

 

[ctrlbrk]

Yes.

Don't know if this will cause more confusion but creditors relate to the day to day transactions recording the invoices.

Accruals and prepayments are accounting transactions to match the period of the service.

In this case the invoice would be recorded in June 25 but it relates to March so we use an accrual to pull that into the correct period.

Sorry if it seems I harp on this - I would have thought that, because the accountant was engaged in June 2025 and he was paid upfront, that entry would have shown under something like "administrative expenses" and be recorded in the subsequent year's accounts, not the ones he made, which ended in March 2025.

 

[Ziggy2024]

Sorry if it seems I harp on this - I would have thought that, because the accountant was engaged in June 2025 and he was paid upfront, that entry would have shown under something like "administrative expenses" and be recorded in the subsequent year's accounts, not the ones he made, which ended in March 2025.

The work relates to March accounts so it is appropriate to provide for it in those accounts.

A similar transaction would be utilities, if you are billed quarterly you would not receive your bill until after your year end date even though you have used the utility that the bill relates to.

Accruals bring the costs forward, prepayments defer the costs. The basic concept is that the costs match to the period of time they relate to.

 

[ctrlbrk]

The work relates to March accounts so it is appropriate to provide for it in those accounts.

A similar transaction would be utilities, if you are billed quarterly you would not receive your bill until after your year end date even though you have used the utility that the bill relates to.

Accruals bring the costs forward, prepayments defer the costs. The basic concept is that the costs match to the period of time they relate to.

These concepts can be difficult to grasp when you're not using them constantly!!

 

[Ziggy2024]

These concepts can be difficult to grasp when you're not using them constantly!!

It can be difficult for people who use them daily

Based on your description it sounds like your accountant is correct, but as with any set of accounts their job is to make sure you understand the figures. If you're not sure then you should feel comfortable asking for clarification.

 

[DontAsk]

The way I see it is accruals are often estimates, rather than something you have a final invoice for. My accountant would enter an accrual amount for preparing the accounts but might charge a different amount, e.g., if I raised queries that required further work before signing the final accounts.

 

[MyAccountantOnline]

When preparing company accounts, you must include all sales made during the year (regardless of when they are paid) and all expenses incurred or relating to the year (not just those paid in the year).

If you pay expenses (in full or in part) that relate to the following year, they must be deducted from the amounts paid—these are prepayments.

If you incur expenses that are billed after the end of the year they relate to, these are added to the accounts as accruals.

In the following year you need to account for the prepayments and accruals from the previous year's accounts so that income and expenses are under or over stated.

(Note: 'Year' can also refer to an accounting period.)