Question

what is acrual expenses

Answer 1

Accrual expenses are expenses that are incurred but not paid in cash. Interest accrued, Salaries accrued but not paid, Utility bill accrued are some examples of accrual expenses. Accrual expenses are recorded as they reflect the true financial position of the business at a particular point of time.

Generally Accrual expense are recorded at the end of a month or year or any time when final accounts are prepared but always before adjusted trial balance. So basically all accrual expense are recorded as an adjustment entry in general journal.

Lets take one example to understand this more clearly. Assume workers in a factory are paid @5000 per week for 5 day in a week on the last day of week that is Friday. Now if the year ends on December 31 and Dec 31 is a Thursday then it means the wages of (5000/5 x 4) $4000 is accrued but not due till Friday. Just to provide final accounts there is a need to record $4000 wages so that accounting records show a true picture.