Prepayments
The unconsumed part of an ordinary service cost that remains a controlled right at the reporting date.
The unconsumed part of an ordinary service cost that remains a controlled right at the reporting date.
Recognising the unconsumed service right
Reviewed · Current · Sterling explanation · From 6 April 2008
For an ordinary service cost, the evidenced unconsumed portion can remain a Prepayment asset when the Business controls a right to future service at the reporting date.
From a fully expensed ledger starting point, the review-only adjustment debits Prepayments and credits the relevant expense. Payment date alone does not prove the asset or its amount.
Exceptions and branches
- Refundability, cancellation, impairment, control, materiality, and specialist standards can change the conclusion.
Assumptions
- The supplied allocation basis faithfully represents service consumption.
Worked example
A £1,200 insurance service runs for twelve whole calendar months from 1 October 2026. At 31 December, three months have been consumed and nine remain. The exact unconsumed amount is £1,200 × 9/12.
£900
The review-only journal is Debit Prepayments £900 and Credit Insurance expense £900. It changes presentation and profit for the reporting period but does not change cash. Sterling never posts it automatically.
Related concepts
Linked from
Sources
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The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008 — Schedule 1, Part 2, paragraph 14. Primary authority.
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The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 — Schedule 1, Part 2, paragraph 14. Primary authority.
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FRS 102 (September 2024 edition) — Paragraphs 2.33 to 2.64, especially paragraph 2.48. Accounting standard. Link-and-cite; publisher-hosted.
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FRS 105 (September 2024 edition) — Paragraphs 2.9 to 2.34, especially paragraph 2.24. Accounting standard. Link-and-cite; publisher-hosted.
Knowledge version: sterling-knowledge@2026-09-11.7. Last checked 11 September 2026.