Question

Grace Inc. has a December 31 year end. Grace had not received their December 2018 bill for their holiday party. Grace will accrue the estimated $5,000 cost at December 31, 2018. On January 28, 2019 ,after the financial statements were released, the final bill was received for the party of $5,250 and paid.

1) Complete the journal entries required relating to Grace Inc.at the below dates (if needed) assuming Grace does not use reversing entries:

a) Dec 31, 2018 - accrual

b) Jan 1, 2019

c) Jan 28, 2019 - payment

2) Repeat (b) & (c) above assuming instead that XYZ DOES USE reversing entries.

Answer 1

Grace does not use reversing entries:

Journal entries
Date	General Journal	Debit	Credit
Dec 31, 2018	Holiday party expense	5,000
	Accrued expense		5,000
	(To record accrued expense.)
Jan 1, 2019	No entry	-
	No entry		-
	(No entry required.)
Jan 28, 2019	Accrued expense	5,000
	Holiday party expense	250
	Cash		5,250
	(To record Final bill of Holiday party paid.)

Grace does use reversing entries:

Journal entries
Date	General Journal	Debit	Credit
Dec 31, 2018	Holiday party expense	5,000
	Accrued expense		5,000
	(To record accrued expense.)
Jan 1, 2019	Accrued expense	5,000
	Holiday party expense		5,000
	(To record reversal entry for accrued expense.)
Jan 28, 2019	Holiday party expense	5,250
	Cash		5,250
	(To record Final bill of Holiday party paid.)