The understanding of accounting is hard, but learning how to post accrued expense journal entry makes it easy. Accrued expense journal entry refers to the recording of expenses that the company owes, but has not made payment for yet. Those are expenses the company has already utilized or received but has yet to process cash out the bank account. If, say, a company consumes electricity in March, but pays the bill in April, it will still need to book the March expense in its March accounts. Note that these unpaid expenses need to be recorded in the month when they occurred. In this manner, your accounting records remain accurate. It correctly budgets the income and expenses for the month. This is the core of accounting standards in India and across the world rules are divided on the basis of this accrual basis of accounting.
What is Accrued Expense Journal Entry?
Before we get into examples, you need to know what it means in general. An accrued expense journal entry is used to record an expense that the business has incurred but has not yet paid. Such expenses are recognized whether there has been a cash payment made or not. That helps align the right expenses in the right timeframe.
The Journal Entry Format
When making an accrued expense entry, you would follow the format:
| Date | Account | Debit (₹) | Credit (₹) |
| 31-Mar | Electricity ExpenseAccrued Expenses Payable | 10,000 | 10,000 |
Therefore, you debit the expense account to record the cost. You are crediting the “Accrued Expenses Payable” account, which is a liability because you still owe that money. This entry remains on the books until you pay the amount. When you make the payment, you need to reverse or adjust the entry.
What are Accrued Expenses?
Accrued expenses are costs not yet paid for that a company has already utilized. They will be settled at a future date, but they have to be reflected in the current period to reflect true profit or otherwise.
Examples of Accrued Expenses
- Wages earned by employees for work already performed
- Rent due but not paid
- Bills for utilities like water and electricity
- Taxes owed but not paid
- Interest on loans that were used but not repaid
- Fees for legal or professional services
You are day-to-day expenses in a business If you miss the mark on recording it, your profit will seem more than what it is. That would provide incorrect insight into your business health.
Why Do They Matter?
They ensure that your records are in accordance with the matching principle. This principle states that income and related expenses should be a part of the same time frame. If a firm occupies the office space in March but pays the rent in April, it would still have to show the rent in March accounts. This, in turn, aids in reporting actual profit for March.
Types of Accrued Expenses
All accrued expenses are unpaid expenses. However, you can categorize them into various types based on what the expense is for.
Accrued Salaries and Wages
Employees may work until the end of the month but their salary gets credited after that. This means that the company has to recognize a salary expense before it pays it.
Accrued Rent
Rent is often paid after the end of a month. Companies still have to factor in rent as an expense this month.
Accrued Utilities
Electricity or water bills arrive after the end of the month. But the company has employed those services. Therefore, the cost must be booked on the same month.
Accrued Interest
If a business has any type of loan, interest accrues daily. It means you need to recognize that interest on a monthly basis, even though the actual payment is made sometime in the future.
Journal Entry for Accrued Advertising Expense
Most companies have ads before paying the agency to advertise. These must be recognized at the time the ad service was rendered, not when payment is made.
By posting these in the correct time frame, your books remain accurate. It also keeps your firm compliant with Indian and global accounting standards.
Benefits of an Accrued Expense Journal Entry
This is not only a rule but rather also an aspect of necessary compliance. It has many advantages. The help with staying organized and compliant with the authorities is something very small to large business can utilize.
- Correct Financial Position- True books reflect true profit. If you forget expenses, your books will reflect more profits than you truly produced.
- Better Budgeting- By recording all expenses, your company can better plan. You understand what cash you need and when you need it.
- Follows Accounting Standards- Ind AS and IFRS-type accounting standards require accrual accounting. You could be breaking rules if you don’t record accrued expenses.
- Helps in Audits- Well-managed recording will ensure smooth audits. It won’t drive your CA or auditor to hunt down missing expenses.
- Supports Decision Making- Accurate records help you make better decisions. You will know your actual profits, your costs and your liabilities.
- Improves Investor Trust- Put real numbers behind the plan — investors or lenders want to see it. Clean books are more trusted by banks/ investors in your business.
Regular accrued expense journal entry brings a strong backbone to your business.
Examples of Accrued Expense Journal Entry
Hence we understand concepts clearly with the examples. Here are a few accrued expenses example journal entries that we use as part of our day-to-day business.
Salary Accrual Example
Let’s assume a company has a ₹50,000 salary obligation for March. They will pay it in April.
| Date | Amount | Debit (₹) | Credit (₹) |
| 31-Mar | Salaries ExpenseAccrued Salaries Payable | 50,000 | 50,000 |
For example, when the salary can be paid in April:
| Date | Amount | Debit (₹) | Credit (₹) |
| 05-Apr | Accrued Salaries PayableBank | 50,000 | 50,000 |
Accrued Advertising Expense Journal Entry
For example, an ad agency perhaps completed a campaign in March, but the bill will arrive in April.
| Date | Amount | Debit (₹) | Credit (₹) |
| 31-Mar | Advertising ExpenseAccrued Expense Payable | 20,000 | 20,000 |
Accrued Expense Reversal Journal Entry
As soon as the next cycle begins and you receive the actual bill, we reverse the entry.
| Date | Amount | Debit (₹) | Credit (₹) |
| 01-Apr | Accrued Expense PayableAdvertising Expense | 20,000 | 20,000 |
The procedure you do is known as accrued expense journal entry reversing.
How to Accrue Expenses with Journal Entries
If you take steps, learning how to accrue expenses with journal entries is simple.
Step-by-Step Process
- A qualified expense that has accumulated but has not been disbursed.
- If possible calculate the exact amount.
- Select the appropriate accounts — typically an expense account and a payable account.
- At the close of the period, you journal entries.
- The reversal entry is done at the beginning of the following period.
Relevance to ACCA Syllabus
ACCA students need to be aware of expenses that should be recognised in the correct period especially in the exam paper for ACCA Financial Accounting (FA) and ACCA Financial Reporting (FR), as detailed in the ACCA syllabus. This means doing adjusting journal entries, mainly for accruals and prepayments.
Accrued Expense Journal Entry ACCA Questions
Q1. What is an accrued salary example at the end of the year?
A. Dr. Salaries Payable, Cr. Salaries Expense
B. Dr. Salaries Expense, Cr. Salaries Payable
C. Dr. Cash, Cr. Salaries Expense
D. Dr. Salaries Expense, Cr. Bank
Answer: B
Q2. What are the underlying principles which allow for the entry of accrued expenses?
A. Prudence Principle
B. Going Concern
C. Matching Principle
D. Dual Aspect
Answer: C
Q3. What would happen if prepaid expenses were not recorded?
A. Assets are overstated
B. Net profit is overstated
C. Liabilities are overstated
D. Cash flow is understated
Answer: B
Q4. Where is the accrued expenses listed on the balance sheet?
A. Non-current Assets
B. Current Assets
C. Current Liabilities
D. Equity
Answer: C
Q5. All of the following are examples of accrued expenses EXCEPT:
A. Unpaid rent
B. Accumulated utility bill
C. Prepaid insurance
D. Unpaid wages
Answer: C
Relevance to US CMA Syllabus
For sure, on the US CMA exam, accrued expenses come up in Part 1: Financial Planning, Performance and Analytics, under the external financial reporting section. Its critical for the correct generation of income statements and balance sheets
Accrued Expense Journal Entry US CMA Questions
Q1. Which of the following is an example of an accrued utility expense?
A. Dr. Utilities Expense, Cr. Accounts Receivable
B. Dr. Utilities Expense, Cr. Utilities Payable
C. Dr. Utilities Payable, Cr. Utilities Expense
D. Dr. Cash, Cr. Utilities Expense
Answer: B
Q2. The main reason recorded accrued expenses is to:
A. Comply with tax law
B. Record future cash flows
C. Match costs with the period they apply to
D. Transaction posting in bank account
Answer: C
Q3. In December, ₹2,000 worth of expense is outstanding. What if it doesn’t get recorded?
A. Profit will be reduced
B. Liabilities will be understated
C. Profit will be overstated
D. Cash flow will decrease
Answer: C
Q4. What are the two financial statements where accrued costs have an impact?
A. Statement of Financial Position and Statement of Income
B. Cash flow and Retained Earnings
C. Retained Earnings and Footnotes
D. Notes and Cash Flow
Answer: A
Q5. Which of the following is NOT necessary to record for accrued expenses?
A. Expense account
B. Payable account
C. Revenue account
D. Journal entry
Answer: C
Relevance to US CPA Syllabus
Accrued expenses in a CPA exam accounting section (Accurate Financial Accounting and Reporting — FAR) are an important component of understanding proper period-end reporting, adjustments, reporting, and adherence to US GAAP.
Accrued Expense Journal Entry US CPA Questions
Q1. An accrued expense is established when:
A. Cash is paid
B. Service is provided
C. Expense recognized but not paid
D. Income is earned
Answer: C
Q2. Which account is credited in the journal entry when an expense is accrued?
A. Prepaid Expense
B. Cash
C. Accounts Receivable
D. Accrued Liabilities
Answer: D
Q3. An accrued expense entry will cause which of the following?
A. Rent paid in advance
B. Advance received for service
C. Accrued payables
D. Equipment purchased
Answer: C
Q4. What happens if an accrued expense doesn’t get posted?
A. Overstated liabilities
B. Overstated revenue
C. Overstated income
D. Understated assets
Answer: C
Q5. When will accrued expenses be reported under accrual accounting?
A. When payment is made
B. At year-end only
C. When incurred
D. When the invoice is issued
Answer: C
Relevance to CFA Syllabus
The treatment of accrued expenses would be tested under the Financial Reporting and Analysis section in CFA Level I, as your interest to gauge how students can utilize the principle of accrual accounting to adjust the financial statements.
Accrued Expense Journal Entry CFA Questions
Q1. What is an example of an accrued expense?
A. An expense paid in advance
B. A cost that has been incurred but not yet paid
C. A liability paid in full
D. Income received in advance
Answer: B
Q2. How accrued expenses affect the balance sheet?
A. Increase in assets
B. Increase in liabilities
C. Decrease in equity
D. Increase in retained earnings
Answer: B
Q3. Accrued expense accounting guarantees:
A. Profits are matched against cash flows
B. Liabilities are ignored
C. Revenues and expenses are recorded in the appropriate period
D. Assets are increased
Answer: C
Q4. Example — A company fails to record accrued interest of ₹1,000. What is the effect?
A. Understated income
B. Overstated liabilities
C. Overstated net income
D. Understated cash
Answer: C
Q5. What element of a financial statement is directly affected by an accrued expense?
A. Inventory
B. Cash
C. Equity
D. Current Liabilities
Answer: D
