Accrued Expenses
An adjusting entry to accrue expenses is necessary when there are
unrecorded expenses and liabilities that apply to a given accounting
period. These expenses may include wages for work performed in the
current accounting period but not paid until the following accounting
period and also the accumulation of interest on notes payable and other
debts.
Suppose a company owes its employees $2,000 in unpaid wages at the
end of an accounting period. The company makes an adjusting entry to
accrue the expense by increasing (debiting) wages expense for $2,000 and
by increasing (crediting) wages payable for $2,000.
If a long-term note payable of $10,000 carries an annual interest
rate of 12%, then $1,200 in interest expense accrues each year. At the
close of each month, therefore, the company makes an adjusting entry to
increase (debit) interest expense for $100 and to increase (credit)
interest payable for $100.
Accounting records that do not include adjusting entries for
accrued expenses understate total liabilities and total expenses and
overstate net income.
Tidak ada komentar:
Posting Komentar