Accounting Treatment of Operating Expenses - Case 2: Accrued Expense 

Accrued expense is expense incurred by the business. It is expense that has been incurred by the organization although cash associated to that expense is not yet paid by the time the year comes to an end. Accrued expense is classified as a current liability for it represents cash yet to be paid by the business in the future. It is a payable

Illustration 

By 31/12/2018, Our Co. ltd had paid salary in cash of $ 90,000

Required;

Record the transactions in the salary expense account

Extract a P& L account at the end of the year 31/12/2018

Extract a balance sheet as at 31/12/2018

Solution

Option one: Direct Approach

final-accounts-img-30

final-accounts-img-31

Option Two: Indirect Accounting Approach

Journal Entries

final-accounts-img-32

final-accounts-img-33

final-accounts-img-34