Accrued Expense | Accrual
An accrual Expense ( accrual) is an expense that has been incurred, but we have not received an invoice. We will receive invoice next accounting period. Accounting standard required company recognize expenses incurred even if invoice are not received or payment. Accrual is liability.
For simple example, your company use electricity for December 2017, but electricity invoice will be issued January 2018, but company needs to estimate electricity expense at December 2017 for closing financial statements.
The following examples are accrual expenses:
- Electricity expense incurred, but no invoice has yet been received from supplier
- Wages incurred,but payment to employees has not yet been made
- Services received from suppliers, but no supplier invoice has yet been received
- Interest on loans incurred, but no lender invoice has yet been received
- Taxes incurred, but payment to government has not yet been made
Journal Entries for Accrual Expenses:
1.Accrual Expense at the end of period
Dr. Expense account…………………..xxx
Cr. Accrual account …………………………xxx
2. Accrual expense at the next period
Reverse beginning accrual
Dr. Accrual account …………………..xxx
Cr. Expense account………………………..xxx
Enter any payments during the period
Dr. Expense account………………….xxx
Cr. Cash………………………………………..xxx
Example :
As at 31 December 2017, ABC Company estimated that $1,000 of electricity was owing for the 3 months to 31 December 2017. Company had not received a bill from the electricity company.
Accrual Expense at the end of period (31 December 2017)
Dr. Electricity Expense……………..1,000
Cr. Accrual,electricity …………………..1,000
Now we assume that January 2018 electricity company issued invoice of $1,030 and ABC company paid to electricity company.
Accrual expense at the next period ( January 2018)
Reverse beginning accrual
Dr. Accrual,electricity ……………..1,000
Cr. Electricity Expense…………………..1,000
Enter any payments during the period
Dr. Electricity Expense………………1,030
Cr. Cash………………………………………1,030
We can record second way as follow.
Dr. Electricity Expense…………….30
Dr. Accrual,electricity …………….1,000
Cr. Cash…………………………………….1,030