Accrued and deferred income

How to move income from one month to another in FreeAgent.

When to move income

Under UK accounting rules, you need to put income that your business earns into your profit and loss account at the point when the business did the work or supplied the goods to its customer - which is not necessarily the same as when the invoice was issued, or when the customer paid.

Sometimes you might invoice a customer in advance of the work being done, and sometimes you might do the work before you invoice your customer. In the first case you'd need to move income forward by one or more months, and in the second you'd be moving the income back to an earlier month.

Moving income forward in time is called deferring the income, while moving it back is called accruing the income.

To achieve either of these in FreeAgent you need to post journal entries.

Deferred income

To defer income, you need to find the amount that's gone into the income account in FreeAgent - say account 001 - early. This will be the amount net of any VAT charged. Let's say this was £400, and you invoiced for it in March, but did the work in April, so you're deferring the income from March to April.

Post one pair of journal entries dated the same day as the invoice date, which is in March in this example, to debit the income code (001 in this example) and credit account 660 Accruals, with £400. Then post a second pair of journal entries dated in April, to debit code 660 and credit code 001, for the same amount, £400. This moves the income from March to April in your profit and loss account. You might date the April journals either the first or the last of the month, or exactly a month after the invoice date - it's up to you.

Accrued income

To accrue income, you need to find the amount that's gone into the income account in FreeAgent - say account 001 - late. This will be the amount net of any VAT charged. Let's say this was £300, and you did the work for it in December, but invoiced for it in January, so you're accruing the income in December.

Post one pair of journal entries dated in the month when you did the work, so December in this example, to debit account 620 Prepayments and credit the income code, which is 001 in this example, for the amount you found earlier, so £300 here. Then post a second pair of journal entries dated on the invoice date, to debit code 001 and credit code 620. This moves the income from January to December in your profit and loss account. You might date the December journals either the first or the last of the month, or exactly a month before the invoice date - it's up to you.

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