The document discusses accrued expenses. It defines an accrued expense as an amount owed for a period but not yet paid, such as unpaid insurance or utility bills. It provides an example of accrued rent expenses. The rent is due quarterly but sometimes paid late. The accounting entries record the rent expense for the full year in 2020 and the unpaid December rent as an accrued expense liability. The document also provides an example journal entry to record accrued expenses and adjust accounts for prepaid expenses and expenses receivable. Learners will understand what accrued expenses are and how to account for them.
The document discusses accrued expenses. It defines an accrued expense as an amount owed for a period but not yet paid, such as unpaid insurance or utility bills. It provides an example of accrued rent expenses. The rent is due quarterly but sometimes paid late. The accounting entries record the rent expense for the full year in 2020 and the unpaid December rent as an accrued expense liability. The document also provides an example journal entry to record accrued expenses and adjust accounts for prepaid expenses and expenses receivable. Learners will understand what accrued expenses are and how to account for them.
The document discusses accrued expenses. It defines an accrued expense as an amount owed for a period but not yet paid, such as unpaid insurance or utility bills. It provides an example of accrued rent expenses. The rent is due quarterly but sometimes paid late. The accounting entries record the rent expense for the full year in 2020 and the unpaid December rent as an accrued expense liability. The document also provides an example journal entry to record accrued expenses and adjust accounts for prepaid expenses and expenses receivable. Learners will understand what accrued expenses are and how to account for them.
The document discusses accrued expenses. It defines an accrued expense as an amount owed for a period but not yet paid, such as unpaid insurance or utility bills. It provides an example of accrued rent expenses. The rent is due quarterly but sometimes paid late. The accounting entries record the rent expense for the full year in 2020 and the unpaid December rent as an accrued expense liability. The document also provides an example journal entry to record accrued expenses and adjust accounts for prepaid expenses and expenses receivable. Learners will understand what accrued expenses are and how to account for them.
OBJECTIVES: By the end of the unit, learners should be able to:
• explain what accrued expenses are
• account for accrued expenses Accrued expense
An accrued expense is an amount due, or the calculation of an amount due in an accounting
period which is unpaid at the end of that financial year, for example, an insurance premium or an electricity bill not yet paid.
Assume that Rent of $20 000 per annum in 2020 is payable at the end of every three months. The rent was paid on time in March but this is not always the case.
Amount Rent Due Rent Paid
$5 000 31 March 31 March $5 000 30 June 2 July $5 000 30 Sept 4 Oct $5 000 30 Dec 5 Jan
The account to record the information will be as below:
2020 $ 2020 $ Mar 31 Cash 5 000 Dec 31 Profit or Loss 20 000 Jul 2 Cash 5 000 Oct 4 Cash 5 000 Dec 31 Accrued 5 000 c/d 20 000 20 000 2012 1 Jan Bal b/d 5 000
The rent for the last three months was paid on 5 January 2021 and so will appear in the books of the year 2020 as the result of a double entry made on that date.
The expense for 2020 is $20 000 as that year’s rent, and this is the amount needed to be transferred to the profit or loss account. The $5 000 is the rent accrued and is a current liability.
Accrued expenses are added to the cost category they belong to in the income statement. They will then be recorded under current liabilities in the statement of financial position. Three of the accounts in Themba’s ledger indicated the following balances at 1 January 2020:
a. Insurance paid in advance $562
b. Wages outstanding $306 c. Rent Receivable received in advance $36
During 2020 Themba:
a. Paid for insurance $ 1019, by bank
b. Paid $15 000 wages, in cash c. Received $2 600 rent by cheque, from the tenant
At 31 December 2020, insurance prepaid was $345. On the same day, rent receivable in arrears was $105 and wages accrued amounted to $419.
Required:
Prepare the insurance, wages and rent receivable accounts for the year ended 31 December 2020 [9]
Basil Shumbanhete This work is licensed under a Creative Commons Attribution 4.0 International License
Rick Makoujy - How To Read A Balance Sheet - The Bottom Line On What You Need To Know About Cash Flow, Assets, Debt, Equity, Profit... and How It All Comes Together-McGraw-Hill (2010) PDF
