Debtors, creditors, accruals and prepayments

Abstract

In all the examples we have dealt with so tar, and indeed in all our discussions, we have always assumed that all transactions are on a cash basis. As we pointed out in Chapter 3, this is unlikely to be the case. Therefore we need to consider how we deal with the situation where a business buys goods from its suppliers on credit terms and also supplies goods to customers on credit terms. We need to consider how to deal with the situation where a business has to pay for goods or services in advance, for example insurances, or when it pays after receiving the goods or services, as would be the case with most raw materials and with services such as electricity, telephones etc.