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Journal Entries of Accrued Expenses

>> August 19, 2012

Accrued expenses are those whose service we have taken but payment has not been done by us. In other words, these expenses are recognized before actual payment.  So, it is necessary to record to record it in the books because we have to show our total expenses in the profit and loss account whether it is paid or not as
per the accrual concept of accounting. Following journal entry will be passed.

Expense Account Debit

Accrued Expense or outstanding expense or expense payable Account Credit

Explanation of Above journal entry: We have debited expense account because whether expense is paid or not, it reduce our total incomes. So, it will be debited. Accrued expense increases the current liability. So, we have credited accrued expense.

Accrued expense or outstanding expense will be added into the expense when we show the total expense in the debit side of profit and loss account. Accrued expense will also show in the liability side of balance sheet.

Example of the Journal Entries of Accrued Expenses

1. Accrued Commission on Sales

ABC Co.  pays salesman  a 10% commission on sales. Salesman sold Rs. 10,00,000 goods up to the end of  31st DEC. 2011. ABC company has paid Rs. 70,000 commission to salesman.  How much does ABC Co. accrue in commissions on December 31 and what journal entry of accrued commission will be passed. 

Total commission = 10,00,000 X 10% = Rs. 1,00,000
Total paid commission =  70,000

Accrued Commission = 1,00,000 - 70,000 = 30,000

31st Dec. 2011

Commission Account Debit 30,000

Accrued Commission Account Credit 30,000

When ABC company will pay the Accrued commission to salesman on 15 Jan. 2012, then following entry will be passed

On 15th Jan 2012

Accrued Commission Account Debit 30,000

Bank Account Credit 30000

2. Accrued Salary

Suppose, ABC company gets the salary at the end of the month. Because 31st DEC. 2011  is the closing of financial of company. Company pays the salary of Rs. 5,00,000 on 10 the Jan. 2012. This salary of Rs. 5,00,000 will show as the 2011's expense and current liability by following entry. 

On 31st Dec. 2012

Salary Account Debit 5,00,000

Accrued Salary Account Credit 5,00,000

On 10th Jan.  2012

Accrued Salary Account Debit 5,00,000

Bank  Account Credit 5,00,000

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