Capital (equity) and net income (income - expense) are separate. It is possible, as you point out, for for taxes to be affected and this is what I am getting a

Capital (equity) and net income (income - expense) are separate. It is possible, as you point out, for for taxes to be affected and this is what I am getting at. Something can affect equity and assets without affecting net income but net income always affects equity and assets. As for prepayments, assuming you aren't one of the rare cash-basis filers, it will be deemed income at the time goods are delivered (and is technically a loan before that point since you have a debt (the goods to deliver) to the customer and if you have to refund the money you may yet have to do so.