Hi everyone, I’m new here and am looking for advice on accruals and reversing entries. I need to know how to accrue for an electricity expense that is received every 3 months. I keep reading that an accrual can be made in month 1, then reversed out in month 2 but if the invoice is not received until month 3, what do I do in month 2 to record a proportion of the expense in that month? And then what do I do when the invoice comes in in month 3? Because a proportion of that bill will relate to the prior months, but if I have reversed them, will the expense be removed from the prior months? How to I record a proportion of the bill in each month, including month 3 when the invoice is received? Many thanks.
UK Accruals advice
- Thread starter Dreem
- Start date
Thank you Kirby- just to clarify, do I post the invoice in the month that it is received, as a payable invoice in the normal way? Presumably if it a different amount to what was accrued, it doesn’t matter?
So months Jan , Feb, and Mar you accrue $1,000 each month for the elec. bill that will come in April
Bill is for $3,500. So in APRIL you pay the $3,500 invoice coded to Elec Expense AND effective in APRIL you reverse the three $1,000 entries.
So far April has a net $500 elec expense until you now accrue for April - lets say $1,000 again. So April shows final elec expense of $1,500.
Actual invoice is typically ALWAYS different than your accrual. That's life. Unless you own a crystal ball and can predict the future. But anyway you can improve the accuracy of your accrual by 1) reviewing prior years' invoices - does the expense go significantly up or down in some months? Maybe due to holiday season, for example. But don't get carried away with extreme accuracy, you have other things to do.
Bill is for $3,500. So in APRIL you pay the $3,500 invoice coded to Elec Expense AND effective in APRIL you reverse the three $1,000 entries.
So far April has a net $500 elec expense until you now accrue for April - lets say $1,000 again. So April shows final elec expense of $1,500.
Actual invoice is typically ALWAYS different than your accrual. That's life. Unless you own a crystal ball and can predict the future. But anyway you can improve the accuracy of your accrual by 1) reviewing prior years' invoices - does the expense go significantly up or down in some months? Maybe due to holiday season, for example. But don't get carried away with extreme accuracy, you have other things to do.