Determine the accrued expense journal entry for the example transaction, given that XYZ Ltd reported the accounting year at the end of 31 st March 2018.Īs per the matching concept Matching Concept The Matching Principle of Accounting provides accounting guidance, stating that all expenses should be recognized in the income statement of the period in which the revenue related to that expense is earned. The expense matches the revenue with which it is associated.Ī company, XYZ Ltd, has paid interest on the outstanding term loan of $1,000,000 for March 2018 on 5th April 2018.

In short, this journal entry recognized in the financial statements enhances the accuracy of the statements.read more in the period of occurrence, which will result in a higher reported profit in that period. These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. If the journal entry is not created, then the expense will not appear in the financial statements of the company Financial Statements Of The Company Financial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly).This term comes into play when in place of the expense documentation, a journal entry is made to recognize an accrued expense in the income statement along with a corresponding liability that is generally categorized as a current liability in the balance sheet. The accrued liabilities account is debited when the company settles its obligation with cash, and the accrued expense account is credited.Īccrued expense refers to the expense that has already been incurred but for which the payment is not made. The expenditure account is debited here, and the accrued liabilities account is credited. An accrued expense journal entry is passed on recording the expenses incurred over one accounting period by the company but not paid actually in that accounting period.

Accountedge basic recording expenses