Accruals and prepayments

Costs incurred but not yet billed, and costs paid in advance.

What it means

An accrual recognises a cost you have incurred but not yet been invoiced for. A prepayment spreads a cost paid up front across the periods it covers.

Why it matters

They are what make monthly figures comparable. Without them, the month the annual insurance is paid looks catastrophic and the other eleven look better than they were.

What it looks like in practice

The common ones: the accountancy fee for the year just ended, the last quarter's electricity, annual insurance, software subscriptions, and rent paid quarterly in advance.

What to watch out for

Accruals set up and never released, which quietly overstate costs forever. They should reverse when the real invoice arrives.

Where to get proper advice

Your accountant. This is exactly the kind of question they answer in ten minutes and most owners never ask.