Accruals and Expenses owing

Discussion in 'UK Accountancy' started by echo---pscbro, Feb 16, 2007.

  1. Hi,

    I am a French accounting student who is now studying UKGaap
    accounting. I have a book which for some applications in the Accruals
    concept relates either Accruals or Expenses owing. Is there any
    difference between the two?

    Further to this, up to now, my understanding of this concept is that
    an expense for which we don't have an invoice but we know the amount
    (from a yearly contract such as the rent or insurrance fees) has to be
    input in the accounting period of its consumption. To my eyes this can
    be called an Expense owing.

    Now, if the amount for the expense can't be determined precisely.
    Taken for example 500 professional phones and communication contracts.
    The subscription fees are the same. However, the amount related to
    communication can change (those that exceed the contract) . We assume
    it can change consistently. Would that still be an Expense owing or
    Accruals or something else.

    Can someone help me understand this better without going too far into
    concepts...in a simple way.

    Pcl
     
    echo---pscbro, Feb 16, 2007
    #1
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  2. echo---pscbro wrote:

    > I am a French accounting student who is now studying UKGaap
    > accounting. I have a book which for some applications in the Accruals
    > concept relates either Accruals or Expenses owing. Is there any
    > difference between the two?


    An accrual isn't technically owing until invoiced.

    > Further to this, up to now, my understanding of this concept is that
    > an expense for which we don't have an invoice but we know the amount
    > (from a yearly contract such as the rent or insurrance fees) has to be
    > input in the accounting period of its consumption. To my eyes this can
    > be called an Expense owing.


    It is very similar, yes.

    > Now, if the amount for the expense can't be determined precisely.
    > Taken for example 500 professional phones and communication contracts.
    > The subscription fees are the same. However, the amount related to
    > communication can change (those that exceed the contract) . We assume
    > it can change consistently. Would that still be an Expense owing or
    > Accruals or something else.


    Your financial year might end on 31st December, and you may be
    expecting a two-month electricity bill covering December and January.
    Until you get the bill (in February) you won't know exactly how big
    the bill is going to be, and therefore how much of it to attribute to
    the old year and how much to the new. But you still need to show the
    December portion as an accrual.

    The trick is to delay finalising the accounts until you do know what the
    amount is. In the meantime, if necessary, you can prepare preliminary
    accounts in which the accrual figures are only estimated.
     
    Ronald Raygun, Feb 16, 2007
    #2
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  3. My understanding;

    Owing expenses can be closely determined in their amount (rent,
    insurances fees, misc subscriptions...).

    Accruals can't be determined as closely as owing expenses in their
    amounts.

    For both the invoice is missing by the date of year end. Now for
    owing, we know how much is due whereas for accrual an estimation has
    to be done.

    Is it the right way to see things?

    Thanks,
    Pcl
     
    echo---pscbro, Feb 17, 2007
    #3
  4. echo---pscbro

    Peter Saxton Guest

    On 16 Feb 2007 17:20:24 -0800, "echo---pscbro" <>
    wrote:

    >My understanding;
    >
    >Owing expenses can be closely determined in their amount (rent,
    >insurances fees, misc subscriptions...).
    >
    >Accruals can't be determined as closely as owing expenses in their
    >amounts.
    >
    >For both the invoice is missing by the date of year end. Now for
    >owing, we know how much is due whereas for accrual an estimation has
    >to be done.
    >
    >Is it the right way to see things?
    >
    >Thanks,
    >Pcl
    >

    What is the difference between "Owing Exoenses" and Creditors for
    expenses?

    This is my understanding:

    You have the invoice - creditor
    You don't have the invoice - accruals

    --
    Peter Saxton from London
     
    Peter Saxton, Feb 17, 2007
    #4
  5. echo---pscbro wrote:

    > My understanding;
    >
    > Owing expenses can be closely determined in their amount (rent,
    > insurances fees, misc subscriptions...).


    Unfortunately all three of these are not good examples because
    they do not have the property (which you mention below) of having
    the invoice missing by year end. This is because things like rent,
    insurance premiums, and service subscriptions are generally invoiced
    and charged in advance.

    Good examples of expenses which are charged in arrears are interest
    on loans, payments for work partially done, payments for comsumption
    of services (such as gas and electricity). Most of these are often
    capable of being estimated reasonably well.

    > Accruals can't be determined as closely as owing expenses in their
    > amounts.
    >
    > For both the invoice is missing by the date of year end. Now for
    > owing, we know how much is due whereas for accrual an estimation has
    > to be done.
    >
    > Is it the right way to see things?


    No. Accurate knowledge of the amount involved is not the basis on
    which to distinguish between a "normal" expense (which has already
    been invoiced but not paid yet) and an accrual. The distinction is
    made on the basis of whether it has been invoiced. An accrual is
    still an amount owing.

    Suppose your financial year ends on 31st December.
    Suppose you receive a gas bill on 20th December for £500 to cover a
    period of 50 days ending on 15th December but don't actually
    pay it until 10th January. You estimate that gas usage for the
    rest of December will also accrue at the rate of £10 per day.

    Your bookkeeping entries would be:

    20th December
    Dr £500 Heating (Expense)
    Cr £500 Gas company

    31st December adjustments
    Dr £160 Heating (Expense)
    Cr £160 Accruals

    This will show the correct amount for gas usage of £660 in the Profit
    and Loss Account, and it will show £660 in the Balance Sheet as owing,
    of which £500 will be in Creditors (Gas comapny) and £160 in Accruals
    (Heating expenses).

    Then in the new year:

    10th January
    Dr £500 Gas company
    Cr £500 Bank

    Later you get a gas bill for 50 days ending 3rd February for £550.

    7th February
    Dr £160 Accruals
    Dr £390 Heating
    Cr £550 Gas Company

    26th February
    Dr £550 Gas Company
    Cr £550 Bank
     
    Ronald Raygun, Feb 17, 2007
    #5
  6. echo---pscbro

    Michael6494

    Joined:
    Mar 23, 2014
    Messages:
    3
    Hi,

    I am using JDEdwards accounting software and every month, I have to upload the accruals and JDE allows me to reverse those accruals automatically at the beginning of next month. My problem is how to re-accrue the reversed accruals for the next period? Below is the illustration;

    Mar'14

    Dr Expenses(I/S) 100
    Cr Accrued Expenses(B/S) 100

    April( Reversal)

    Dr- Accrued Expenses(B/S) 100
    Cr- Expenses 100

    Invoices received in April

    Dr- Expenses 80
    Cr- Cash 80
    Dr Accrued Exp(B/S) 20
    Cr Expenses 20

    How do I re-accrue the remaining 20 ?

    Dr- Exp(I/S) 40
    Cr- Accrue Exp(B/S) - 40

    Or ??

    Thanks!
     
    Michael6494, Mar 23, 2014
    #6
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