This article deals with expenses unpaid for which are adjusting entries that for the final accounts or balance sheet
First, we look at what are some instances of expenses unpaid for, how we take up such expenses and understand the accounting entries for over or under taking up of such accruals/accrued expenses.
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Instances Of Expenses Unpaid, Impact And Term Used |
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1. Company A has its month end close for reporting but payment of salaries are made only on every 15th of each month. 2. Utilities expenses like water, electricity not received yet 3. Workdone by professionals in stages
Remarks: For 1:The balance of fifteen days needs to be taken up to match expenses with the revenue for the accounting month. For 2: Expenses not timely received needs to be taken For 3: We cannot wait for the completion of the workdone, hence the need to take up in stages of completion.
Impact:
The word use to take up the relevant unpaid expenses is called accruing for the expenses or rather accrued expenses or accruals.
Accruing for expenses unpaid is in line with the matching of expenses with revenue for the relevant accounting period. Click here to Accrual Concepts and Difference between Cash Basis Accounting Versus Accrual basis.
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Accounting Treatment For Unpaid Expenses |
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Debit the unpaid expense and Credit Accrual Example No 1: Company A has its month end close on 30 th each month for reporting purpose but payment of salaries are made on every 15th of each month.
Example No 2
In example no 2, we can try to estimate the accrued expenses by looking at the preceding month figures or take the average of a few months figure to compute the accrual
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When ACTUAL BILLS are received |
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In the event that the expenses are under accrued or over accrued:
Under-accrued expenses:
Debit : More expenses into Income Statement Debit : Accrual to reverse original entry Credit : Sundry or Trade Creditors ( where relevant)
Over-accrued expenses:
Debit : Accrual to reverse original entry Credit : Overtaken expenses figures into Income Statement Credit : Sundry or Trade Creditors ( where relevant)
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Click here for ALL articles on Adjustments To Final Accounts or Balance Sheet |
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