Accrued expenses

Question 1

How do accrued expenses work?

Answer 1

The expense is incurred in year 1 and the cash is only paid in year 2

Question 2

What happens if the bookkeeper receives an invoice ?

Answer 2

An expense that has been incurred will likely be recorded despite the cash not having been paid

Question 3

What happens for some expenses?

Answer 3

For some expenses, the source document may come to late, or not at all, e.g electricity, telephone, salaries, wages, rent, interest, etc.

Question 4

What happens if the source document is late or does not arrive at all?

Answer 4

DR XXX expense

CR Accrued XXX expense

Question 5

What happens if expenses are paid in the same year they’re incurred?

Answer 5

No adjusting entry

Question 6

What happens if expenses are paid the year before they’re incurred?

Answer 6

They are then called “accrued expenses”

Question 7

How are year 1 accrued expense adjustments are reversed on Day 1 of year 2 (2)

Answer 7

1. Removing the liability

2. Avoiding double-accounting the expense in year 2

Question 8

What is absorbed in year 2?

Answer 8

If the expense was estimated for the year 1 adjustment, then the difference between the actual and estimated figure is absorbed in year 2