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


Option Two: Indirect Accounting Approach
Journal Entries



About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.