Accruals question

Matt444 Registered Posts: 36 Regular contributor ⭐
I'm expecting a £30k rent invoice at the end of P3 and so accrue £10k per month. At the end of P3 the actual invoice is £18k NOT £30k. This has given me a £2k credit on my P&L rent acct. The overall costs recognised in the 3 months agree however with the actual invoice.

Do I need to make any further adjustments in period 3?

10,000 Rent expense Period 1

-10000 Rent expense opening accrual Period 2
20000 Rent exp closing accrual Period 2

-20000 Rent expense opening accrual Period 3
18000 Invoice rec'd - 3 month period Period 3


  • Matt444
    Matt444 Registered Posts: 36 Regular contributor ⭐

    Should I be doing the below for the adjustment for the over accrual:-

    Dr - P&L expense £2k
    Cr - Accruals £2k

    This would mean I would recognise £30k for the 3 months rent in the P&L (£10k per month) and the accrual balance on the balance sheet would be £18k???

    If anybody could clarify the final adjustments that would be great. I'm a little confused......
  • sdv
    sdv Registered Posts: 585 Epic contributor 🐘
    I don't think you are applying accounting for accuals correctly

    normally in month one you would have
    debited expenses (P&L) £10,000
    credit Accruals (BS) £10,000

    on the last day to period one and on the first day of period 2 the above entry would have been reversed leaving zero balance in the accruals accounts

    In the 2nd period
    Debit £20,000 in the expense account (now for 2 months)
    Credit £20,000 in the Accruals account

    on the first day of the 3rd period reverse the £20,000 entries
    On the last of the 3rd period
    Debit £18,000 in the rent account and
    Credit £18,000 in the accruals account

    Reverse the above entry on the beginning of the 4th accounting period.
    Your are most likely to pay the in the 4th accounting period and when you pay your rent invoice
    Debit Rent £18,000
    Credit Bank £18,000

    In your case I would reverse £20,000 from the Rent account. ie
    Credit Rent £20,000 and
    Debit ????? £20,000 (????= where did you credit the original £10,000 x 2)


    Debit Rent account with £18,000 and
    Credit Accruals with £18 000

    At the begining of the next accounting period you will need to revere this and when a cheque of £18,000 is paid rent will show £18,000 debit balance, Bank £18,000 credit and accruals = £nil

    I hope this helps
  • Matt444
    Matt444 Registered Posts: 36 Regular contributor ⭐
    Thanks SDV, that makes much more sense now!

    If in Period 3 we settled the payment of rent on the last day of the month rather than in P4 would it be like this....

    P3 - Rent expense (P&L acct)

    Opening accrual - 20,000
    Rent payment 18,000 ie cr bank / dr rent expense

    Total balance -2,000

    Add back P1 & P2 (10,000 + 10,000 - 2,000) 18,000 P&L recognition


    -10000 (p1)

    10,000 (p2) open accrual
    -20,000 (p2) closing accrual

    20,000 (p3) open accrual

    Total = nil accrual balance
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