Prepayments Clarification

We’ve had some queries about prepayments and we wanted to provide some clarification as to when they are needed and what they seek to achieve.

Simply put- a prepayment adjustment is needed when a payment has been made in advance for goods or services that have not yet been received. This adjustment will push the expenditure forwards so that it is recorded in the period it relates to.

In practical terms this means that cash expenditure can be incurred for a service that is for a future period but for financial accounting purposes this expenditure is offset against budget for that future period  For example a subscription paid at the end of 21/22 financial year might relate wholly (or partly) to the following financial year- this should be treated as a prepayment and accounted for in the following year (22/23), which will be charged against that year’s budget.

We advise that prepayments are required for expenditure that is more than £1,000 unless it is viewed as necessary by your division / department.

If you have any queries please contact the Financial Accounting team.