under accural accounting, you record and report expenses

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What are accruals?

Under accrual accounting, a company earned some revenue, but the payment is not received is called unpaid revenues otherwise it is called as accrued revenue. Similarly, expenses has incurred but the company did not pay for them cash yet is also be accrued as unpaid expenses. Under the accrual accounting process, the revenues and expenses are matched as they incur in rather than considering the payment of cash in different time periods.

Accrued Expenses

Accrued expense is an expense that has been incurred but the payment is not made. Expense must be recorded in the period that it has incurred than the period in which the actual payment is paid.

For Example

XYZ company pays loan interest for the month of July 2010 $ 8000 on January 2011. XYZ has an accounting year end of December 2010.

Even though the payment is made in the year 2011, the actual transaction will be entered in the year 2010 as it has incurred in the year 2011.

In 2010, when expenses incurred, the journal entry is recorded

Particulars	Debit	Credit
Interest Expense	$8000
Interest Payable		$8000

In 2011, on the date of payment, the journal entry is recorded as follows,

Particulars	Debit	Credit
Interest payable	$8000
Bank		$8000

ekkarill92 answered 1 year ago

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