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Accrued Expenses

In: Business and Management

Submitted By ewilhems
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Accrued Expense
“Accrued expenses are expenses that have occurred but are not yet recorded through the normal processing of transactions. Since these expenses are not yet in the accountant's general ledger, they will not appear on the financial statements unless an adjusting entry is entered prior to the preparation of the financial statements.” (What are accrued expenses, n.d. pg.1) If an adjusting entry is made it should be journalized in the period in which it occurred and not the period which it was paid. Some examples of accrued expenses that need to be adjusted are interest on loans, supplies/services received but not been billed for, taxes incurred, or salaries employees have earned but not yet been paid. To take a deeper look inside how we should adjust this type of journal entry we will demonstrate an adjusted entry for interest incurred from a loan. Hypothetically if Kemcor International pays the interest on a loan amounting to $5,000 on December of 2014 for a billing period of January 14th 2014, Kemcor International accounting period ends on the 31st of Dec 2014. Kemcor will then recognize the interest expense of $5,000 for the year of 2014 even though it was paid in the following accounting period. The following entry is what is to be recorded for interest expense accrued. | | Amount | Debit | Interest Expense | 5000 | Credit | Interest Payable | 5000 | Then when payment is actually made on January 14th you would then create a new journal entry for the changes made and it will look like the following: | | Amount | Debit | Interest Payable | 5000 | Credit | Cash | 5000 | Now let’s take a look into accrued revenue. “Accrued revenue is a sale that has been recognized by the seller, but which has not yet been billed to the customer. This concept is used in businesses where revenue…...

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