Accrued expenses are an important part of the accounting process. Expenses that are incurred but have not been recorded by the end of a given accounting period need to be treated as accrued expenses in accordance with the accrual basis of accounting. Learning how to accrue an expense properly requires a solid grasp of the underlying accounting principles, but fortunately, the process itself is fairly straightforward.
An accrued expense occurs when an accounting period is coming to a close and there are unrecorded expenses and liabilities. For example, wages that have been earned but not yet disbursed would represent an accrued expense. Accrued expenses are handled through adjusting entries to the general journal.
Why can't you simply record an expense (like paying an employee's wage) as the cash is disbursed? The answer is that this would violate the cornerstones of the accrual basis of accounting. There are 2 principles which underpin accrual accounting.
The first is the matching principle. The matching principle dictates that expenses are recorded when they are incurred and that they are offset against their corresponding revenues. So, the revenue generated when a car dealership sells a car should be reported in the same period as the expense of buying the car from the manufacturer.
The second is the revenue recognition principle. According to this principle, revenues are recognized when they are both realized (or realizable) and earned. Revenues are "realized" when a claim to cash has been received, and they are "earned" when a good has been transferred or a service rendered.
An accrued expense occurs when an accounting period is coming to a close and there are unrecorded expenses and liabilities. For example, wages that have been earned but not yet disbursed would represent an accrued expense. Accrued expenses are handled through adjusting entries to the general journal.
Why can't you simply record an expense (like paying an employee's wage) as the cash is disbursed? The answer is that this would violate the cornerstones of the accrual basis of accounting. There are 2 principles which underpin accrual accounting.
The first is the matching principle. The matching principle dictates that expenses are recorded when they are incurred and that they are offset against their corresponding revenues. So, the revenue generated when a car dealership sells a car should be reported in the same period as the expense of buying the car from the manufacturer.
The second is the revenue recognition principle. According to this principle, revenues are recognized when they are both realized (or realizable) and earned. Revenues are "realized" when a claim to cash has been received, and they are "earned" when a good has been transferred or a service rendered.
