

Properly accounting for accruals and prepaids is essential for an accurate financial report of your government organization. Accurate reporting gains trust among your stakeholders and gives you greater opportunities at grants and loans.
This article defines accruals and prepaids according to the Generally Accepted Accounting Principles (GAAP), which are standards required for government organizations, and gives examples.
If you have questions beyond this article, contact us at the form below. We’ve worked with government groups for many years and can help you too.
Accruals Defined by GAAP
Accruals, or accrued expenses, have been incurred but have not yet been paid. Accruals are used to record transactions that occur during a fiscal period but are not completed until the next period. This process is different than cash basis accounting, which records transactions only when money has changed hands.
Accrual accounting is required under GAAP because stakeholders get a more current picture of a government’s financial standing.
Examples of Accruals
Common accruals for a government entity include interest on loans, services already received, employee wages, utilities and goods received. Transactions like these would be recorded on a balance sheet as accruals.
Prepaids for Government Organizations
Prepaids are expenses that have been paid in advance but have not been used to completion. In government accounting, prepaids are usually related to long-term assets like a building or equipment. Prepaids are recorded on the balance sheet as assets until they are used up or consumed.
The Difference between Accruals and Prepaids
Accruals and prepaids are sometimes confused. In government accounting, they’re opposite of each other. Accruals are recorded as a liability on a balance sheet while prepaids are recorded as assets. Accruals account for expenses already recognized but not actually paid for. And prepaids, as the name suggests, are goods and service paid for in advance.
Morgan & Associates Know Government Accounting
With hundreds of clients happily served, we’ve seen and done everything in accounting. And that includes accruals and prepaids! If you’re ready for an expert to analyze your current accounting practices, we’d love to talk with you. Use the form below to contact us.