Accruals

sarahwilsonsarahwilson Experienced MentorPosts: 567Registered
I'm getting confused about accruals can someone help me out plese before I drive myself mad!

Cr accrual & debit expense acct to set up the accrual
DR accrual & credit the expense acct to reverse it

Thats all fine (I hope) and I'm having a total blonde day now, the invoice and payment are just treated as normal aren't they? I don't know why but all I can think when I'm looking at accruals is what do I do when I've paid it:blushing:

Comments

  • vishavisha Well-Known Posts: 218Registered
    What are Accurals?

    They are the expense that you ahce already incurred but have not yet paid for.

    For example; you are using the electricity today to run your light bulbs, computers etc, but you will not be billed for it until the end of next month. and let us assume that the end of your accounting period is at the end of this month.

    Question! should you account for the electricity used during this month in your accounts? If yes what accounting concept are you applying?

    The answer is YES and the accounting concept is the ACCRUALS CONCEPT that says that you must match all the income and all the expense (paid or unpaid) to that accounting period.

    Therefore if we have incuured an expense we need to estimate the expense and add to total expensed already paid for.

    At the end of year:
    the double entry therefore is DEBIT Electricity Expense for say £150
    and CREDIT Accruals for £150

    Electricity expense will go up by £150 and that will end up in P&L a/c
    Accruals are not yet paid for and therfore it is unpaid creditors and will be shown under current liabilitites in the balance sheet on the last day on the year!

    On the very first day the above entry is reversed.
    the double entry therefore is DEBIT Accruals for say £150
    and CREDIT Electricity Expense for £150

    Can you have a CREDIT balance on an expense a/c?

    NO:
    So on the 30th on the new month when you pay from bank for last month's electricity

    the double entry will be DEBIT Electricity Expense for £150
    and CREDIT Bank for £150.

    Now the Expense a/c will have a NIL Balance and Accruals will have a NIL balance!

    I hope this clears your understanding.
  • sharonsharon Well-Known Posts: 161Registered
    Yer thats helped me out too! Cheers!
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