In: Accounting
In 175 words or more give some common examples of accrued revenue and accrued expenses that may occur in a business. Discuss why they arise, how they are recorded, and why it is necessary to record them.
ACCRUED REVENUE:-
Accrued Revenue consists of Income which is earned by company means all the works has done by the company but no bill issued or payment received by the customer eg:- Interest income
WHY THEY ARISE:-
Its arise because in one month company provided the services to the client but invoice raise or amount receive in the following months
like ABC Ltd provide the services to Mr X in the month of April of $50 but invoice raise in the following months so the accrued revenue will book in the month of April of $50
HOW THEY RECORDED:-
ENTRY OF ACCRUED INCOME
Service Revenue (DR)- asset is the balance sheet
Services (CR) income statement in credit side
WHY IT IS NECESSARY TO RECORD:-
Its very necessary to record accrued revenue because its represents the true and fair accounting as the revenue should be book in the same month in which it earned
ACCRUED EXPENSES
Accrued Expenses means the expenses related with the current year but not paid as yet eg:- salary paid next year or next month.
WHY THEY ARISE:-
Its arise because expenses should be book in the same month in which it relates
like salary in the month of January should be book in the month of January whether it will pay in the month of Feb
HOW THEY RECORDED:-
Salary expense (DR)- exp in the income statement
Salary Payable (CR)- liability in the balance sheet
WHY IT IS NECESSARY TO RECORD:-
Its necessary to record because expense must be show in the same month in which it incurred