You can deduct expenses invoiced but not paid at the year end date from your profit for tax if not already included in your purchase list but invoiced for the period before the year end. Make a list of these (such as telephone & electricity) following the example in ‘purchases on account’. The total accrued expenses are shown in a line under current liabilities in the balance sheet.. Your balance sheet will balance because you have adjusted current assets and accumulated profit by the same amount. Your accountant usually checks that all these expenses are included when calculating your profit. This can be done in the annual summary under a separate column as follows:
Expenses such as rates are paid in advance. You can add back the portion belonging to next year in your accounts to smooth profits from year to year. Say four months of next year’s rates have already been paid by the year end. Take the payment, divide it by twelve and multiply it by four to work out how much to deduct from the payment. Make a list of all prepaid expenses and how you have calculated next year’s portion, as you will need to be able to explain it to the accountant and possibly the tax authority. The prepaid portion of each expense is deducted directly from the total of that expense for the year in the annual summary. The total of the prepaid expenses is shown in the balance sheet under current assets. Your balance sheet will balance because you have adjusted current assets and accumulated profit by the same amount. This can be done in the annual summary under a separate column as follows:
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