#ACCRUED EXPENSE FREE#

Just like earlier with salaries and wages, we use an example to demonstrate what we mean. Notes payables are promissory notes issued by either an individual, banks, or even other companies that obligate the issuing party (the one who must pay it back) to pay back the amount stated by a certain date. Accrued InterestĪccrued interest is another type of accrued expense that is common for companies with notes payables. Note that salaries payable is similar to accounts payable. We also credit cash to demonstrate that cash was paid for salaries. This is shown in the second entry by debiting the salaries and wages payable account by the amount that was accrued and debiting the salaries expense account. Now, when the company reaches the end of their 5-day work week, which lands on Tuesday of next week, July 11, management records the payment of the salaries. This is the salaries that have accrued over the three days, which can be found through some math: (58/5)*3. Notice that on Friday, July 7, management would record the recognition of the accrued salaries expense. This is the entry that management would record: It means management needed to prepare adjusting entries to recognize employees have only been paid three days out of five. Unfortunately, due to statutory holidays occurring in the preceding week (Monday and Tuesday), employees were only paid for Wednesday, Thursday, and Friday. The last time employees were paid was on June 30, Friday. ExampleĬorporate Finance Institute pays salaries of $58 per day in a 5-day work week every week. Following is an example to demonstrate how and when this type of accrued expense may occur. This type of accrued expense is very common and occurs regularly within company operations.

#ACCRUED EXPENSE FREE#

If you are unfamiliar with Microsoft’s spreadsheet program, be sure to check out our free Excel crash course. In demonstrating and showing examples of accrued expenses, we are using MS Excel. However, in this article, we focus on the more common accrued expenses that you will run into as an accountant from time to time:

There are different types of accrued expenses. This is true regardless of whether or not cash has actually been received by the seller or paid out by the buyer. These expenses are paired up against revenue via the matching principle from the GAAP (Generally Accepted Accounting Principles).įor those who are unaware of the matching principle, it states that you record revenues and all related expenses in the accounting period in which they occur. Accrued expenses are expenses that are recognized at the time they are incurred, even though cash has not yet been paid.