Adjusting Accruals.docx - Introduction Some expenses are...

This preview shows page 1 - 3 out of 6 pages.

Introduction Some expenses are incurred before the cash payment for these expenses is made. These are known as accrued expenses . Likewise, some revenue is earned before payment is received. This is known as accrued revenue . Under accrual accounting , these expenses should be recorded when they are incurred, regardless of when their payment is made, and the revenue earned should be recorded at the time that it is earned, even if payment has not yet been received. Adjusting entries are used to record accrued revenue and expenses. Learning Materials Expenses may be incurred before the payment for these expenses is made. These are known as accrued expenses . Under accrual accounting, these expenses should be recorded when incurred, regardless of when the payment is made. Some examples of accrued expenses are salaries and wages, interest, and utilities. When a pay period crosses from one accounting period into another, an adjusting entry must be made to record the payroll expense applicable to the first accounting period. For example, Acorn Construction’s payroll totals $200 per day. Its employees work Monday to Friday, and payroll is paid on the 10th and 25th of the month. After the payroll is paid on December 25, there are 3 workdays remaining in the year. These 3 days will be paid in the payroll payment on January 10. The following is the adjusting entry to be made on December 31 to record the remaining payroll expense for the year (the 3 days):
Image of page 1

Subscribe to view the full document.

Debit Credit Wages Expense $600 Wages Payable $600 On January 10, the payroll is paid. There are 7 additional workdays in January to be included in this payment. The following is the entry that will be made to record the payment of the January 10 payroll: Debit Credit Wages Expense $1,400 Wages Payable $600 Cash $2,000 The adjusting entry ensures that the accrued payroll expense of 3 days is recorded in the correct accounting period (i.e., December). It also sets up a liability for these 3 days, which is paid at the next payday. The entry on
Image of page 2
Image of page 3
You've reached the end of this preview.
  • Spring '12
  • JamesKeating
  • Generally Accepted Accounting Principles, Acorn Construction

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern