Question

Ms.salma is yet to pay the salaries to her employees of last three months. Write a ahort note on accrued expenses with literature review and by providing examples.?

Answer 1

An accrued expense refers to an expense that is recognized on the books that is recorded in books, before it has been paid. such expense is recorded in the accounting period in which it is incurred.They are expenses that is incurred by entity and also recorded in books and utilised but the payment for same is outstanding. Because accrued expenses represent a company's obligation to make future cash payments, they are shown on a company's balance sheet as current liabilities. As per the acocounting concept of accrual the expenses are recognised in books although no payment for same are done.

It provides more real picture of Books of accounting then what is shown as per cash basis accounting.

Such expenses are recorded although the cash flow for same is not occured in actual.

Examples of Accrued Expense that can be incurred :

Salary expense

Rent Expenses

Employees Commision Expenses

Expense incurred for any services acquired

Expnese incured to recieve Professional services. i.e. Professional Expenses

Expenses for Office maintenance

Rates and taxes Expense

Any other utility expenses.

Detailed view for Example on Accrued Expense :

Following is an extract of Balance Sheet of a Company showing Liability portion as on Mar-20.

Particulars	Amount
Wages Payables	$12,000
Creditors	$4,500
Salaries Payables	$8,000
Outstanding Rent	$4000
Bills Payable	$1000
Accrued Expenses	$3500

Considering the above example

Following are heads that amounts to Accrued expenses :

Particulars	Amount
Wages Payables	$12,000
Salaries Payables	$8,000
Outstanding Rent	$4000
Accrued Expenses	$3500
Total	$27,500

Accrued expenses are recorded on the Liability side of balance sheet and are shown under th Profit and Loss statement as expenses for that period although the same are not paid.

In our given case Ms Salma is required to pay 3 months salaries which are Accrued expenses and will have the tratment as shown above.