Let’s say your business, a combination bookshop, record store, and taqueria, rents a brand new street-level retail space. How to record adjusting journal entries for accrued expenses Anything you’ve purchased but haven’t received an invoice for yet.Utilities expenses that won’t be billed until the following month.Unpaid interest expenses or accrued interest payable.Cost of future customer warranty payments, returns, or repairs.An example of an accrued expense might include: Examples of accrued expensesĪny expense you record now but plan to pay for at a later date creates an accrued expense account in your books. Talking to a CPA can help you choose the method that’s best for you. Your accounting method greatly affects your financial reports and how you understand the financial health of your business. Using the accrual method, you would record a loss of $2,000 for the reporting period ($2,000 in income minus $4,000 in accounts payable). Using the cash basis method, the profit for the reporting period would be $500 ($1,000 in income minus $500 in fees). Received $1,000 from a client for a project that was invoiced last month.Paid $500 in fees for a bill you received last month.Sent a $2,000 invoice for a deposit for a project you intend to start the following month.Received a bill for $4,000 in developer fees for work done this month.Sent out an invoice for $2,000 for a web design project completed this month.Recording accrued expenses (as opposed to sticking with cash basis accounting) can have a big impact on how you understand your business’s financial position and cash flow.įor example, let’s say you did all of the following in the same month: But with accrual, the expenses show up on your income statement in June as your employee purchases the supplies. If you use cash accounting, you won’t record accrued expenses because you’ll only record the expenses once the employee is paid in July. Your accounting method determines in which month the expenses are recorded. To illustrate this, let’s say an employee of yours is purchasing supplies for a staff party in June, for which they’ll be reimbursed on their July paycheck.
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