#Accrued expenses example software

To continue with the preceding example, the $500 entry would reverse in the following month, with a credit to the office supplies expense account and a debit to the accrued expenses liability account. Thus, if the amount of the office supplies were $500, the journal entry would be a debit of $500 to the office supplies expense account and a credit of $500 to the accrued expenses liability account. To properly record this expense in the month of receipt, the accounting staff records an expense in the supplies expense account with a debit in the amount that it expects to be billed by the supplier, and records a credit to an accrued expenses liability account. Wages incurred, for which payment to employees has not yet been madeĪn example of an accrued expense is a situation where a company receives office supplies from a supplier near the end of a month, but has not yet received an invoice from the supplier by the time the company closes its books for the month. Taxes incurred, for which no invoice from a government entity has yet been received Services received, for which no supplier invoice has yet been received Goods received and consumed or sold, for which no supplier invoice has yet been received Interest on loans, for which no lender invoice has yet been received

If the expected settlement date will be more than a year in the future, the liability is instead classified as a long-term liability.Įxamples of expenses that are are commonly accrued include the following items: When the settlement period is within the next year, the liability associated with an accrued expense is presented in the balance sheet as a current liability. Presentation of Accrued ExpensesĪn accrued expense is usually expected to be paid for within quite a short period of time, such as the next month. Then, when the supplier eventually submits an invoice to the entity, it cancels out the reversed entry.

#Accrued expenses example software

The journal entry is normally created as an automatically reversing entry, so that the accounting software automatically creates an offsetting entry as of the beginning of the following month. In short, accrued expenses are recorded to increase the accuracy of the financial statements, so that expenses are more closely aligned with those revenues with which they are associated. In the absence of a journal entry, the expense would not appear at all in the entity's financial statements in the period incurred, which would result in reported profits being too high in that period.

In place of the documentation, a journal entry is created to record an accrued expense, as well as an offsetting liability. An accrued expense is an expense that has been incurred, but for which there is not yet any expenditure documentation.