USA Reclass Accruals?


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Can we reclass an accrual entry?

We accrued in May for two months services, April and May and then the reverse entry took place in the first week of June. However we realized that we have accrued to the wrong account. Besides this, we received the two invoices, for April and May and they were booked, the invoice for April went to the right account, but the May invoice went to the wrong account, same account that the Accruals and the reversals are.

Question: Now in June, should I reclass the Accruals for April and May that were booked to the wrong account, and reclass them to the right account? Or should I just reclass only the May invoice to the right account? I am new at this, so every help will be much appreciated. Thanks!
 
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Ugo

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Personally, if I were in your position, I would reverse the initial entries and redo it under the new account. I won't just reclass it. Reversing the entries would show a trace. That way, in the future you can still see what you did and why. Just make sure you put as much notes in the description/notes.

The reason you shouldn't just do it for May is because if someone was comparing accounts, the information would be misleading if material enough. Hope this helps.
 
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Personally, if I were in your position, I would reverse the initial entries and redo it under the new account. I won't just reclass it. Reversing the entries would show a trace. That way, in the future you can still see what you did and why. Just make sure you put as much notes in the description/notes.

The reason you shouldn't just do it for May is because if someone was comparing accounts, the information would be misleading if material enough. Hope this helps.
Thanks for the response. What about the accruals that were booked last month to the wrong account (they were automatically reversed in the beginning of the next month), do we need to reclass theese accruals this month to the right account?
 
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This is what I am trying to understand. Why would we need to reclass these two accruals? They were reversed next month, so what is to reclass? The invoices for these two accruals are received; one is uploaded to the right account, the other invoice to wrong account and I need to reclass the invoice, but not sure why is the need that I should reclass the two accruals? Thanks
 

Ugo

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You should be able to just change the account on the one that was done wrongly both on the initial entry and the reversal (manually).

Without seeing the entire situation it may be hard to help on this one. But let try this...

Invoice comes in May...

Debit - Expense Account Wrong
Credit - Accounts Payable

Pay Invoice in June

Debit - Accounts Payable
Credit - Cash

Should just be able to change the Expense Category OR with a journal entry, go to the month it took place and

Credit - Expense Account Wrong
Debit - Expense Account Right

And be done.
 
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Thanks for the response. I'll try to explain:

In May we accrued for two month services done to us. Beginning of June they were automatically reversed.
However, the accruals were booked to the wrong expense account.

In June we uploaded the invoices we received for these two accruals. April invoice was booked in the right account. May invoice to wrong expense account, the same one that we booked the accruals.

Do I need to reclass the accruals, if so why? We already received the invoices and the accruals are reversed. I do though need to reclass the invoice that was booked to the incorrect account. Hope I explained it. Thanks
 

Ugo

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From what I am reading...I think all you need to do is reclass the invoice. Bottom line is that you want/need is to make sure the right expense category is used. Then I would just reclass the expense either through the system or a journal entry.
 
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Thanks. That's what I think also. the accrual was booked in the wrong account last month, it was reversed in the beginning of this month, so why reclass it, right? We have already have the invoices, and since one of the invoices is incorrectly booked in the wrong expense account, then just only reclass that invoice thru a journal entry to the right account. No need to do any reclass for the accruals. I am not an accountant, I just want to make sure this makes sense. Does it? Thanks
 

Ugo

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It does. Hope I was able to be of assistance.
 
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Thanks Ugo I appreciate your assistance. But I would like to push my question little bit further. As I mentioned I am not an accountant, I know accounting, but not an accountant, so these things get me confused a bit. So the follow up questions would be: ok, I won't do anything with the initial accruals that I booked in the wrong account, but only reclass the invoice that was booked in the wrong account, however, I would like to understand what happens with the accrual and reversal, they just will stay in the wrong account? Doesn't that impact the reporting for those two months? The month of the accrual and the month of the reversal? Thanks in advance for any insights you would give me.
 
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Ugo

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Honestly, it is very tough without seeing your books and the whole transaction so in a way I am flying blind.

That said, I would look at a couple of things...pull up your Income Statement and if everything has been done properly, the amount on the invoice should show on the appropriate months. And on your Balance Sheet, if it's been paid, there shouldn't be a balance for those transactions in payables.

When you accrue something, you are basically recognizing the expense in the month that it takes place. This is often done if you are going to be bill in the following month.

When it reverses, you create a "negative" amount in the expense and delete the payable. When the invoice is paid, the negates the "negative" amount in the expense making it zero hence allowing you to have recognized the expense when it happened but paid it in future the future month. Example - Lets say you bought a pencil and they will bill you next month.

June
CR - Accounts Payable $1
DB - Pencil Expense $1

At the end of the month, on your Balance Sheet, you show that you owe $1 to Pencil Guy. On your Income Statement, even though you haven't paid pencil guy, you'll show Pencil Expense of $1.

July (Before Invoice) - The reversal
DB - Accounts Payable $1
CR - Pencil Expense $1

So now, on your balance sheet, your Accounts Payable that said you owed $1 says you owe nothing. On your Income Statement, you show a negative expense of $1.

Invoice comes in from Pencil Guy
DB - Pencil Expense $1
CR- Cash $1

Now your cash is down $1. And Pencil Expense is now $0.

Make sense? Trying to break it down the simplest I can. Don't feel bad. Many accountants struggle to understand this and I mean far more than you would imagine.
 
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Thanks so much for the explanation; I understand the accruals and the way they work, including the reverse and the invoice when they come in, exactly how you described it.

The thing that I am struggling is this:

Two accruals were booked in May to wrong account X, they needed to be booked to account Y; the reverse happened in June (negative in account X)

The invoices received and uploaded in June to the right account Y (one was incoretely booked to X, but for simplicity let's suppose that both invoices were booked corectely in expense account Y, where they should).

My question is, what should I do with accruals that were booked incoretely in expense account X in May? Thanks
 

Ugo

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Go to May and use a journal entry to correct it

DB Account Y $1 (or what ever the amount accrued was)
CR Account X $1 (or whatever the account accrued was)

Go to June

DB Account X $1 (or what ever the amount accrued was)
CR Account Y $1 (or whatever the account accrued was)

Both accounts in June should end up as $0 for that particular expense now since the main expense took place in May.
 
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Ugo

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You're welcome. Truly hope I was able to help. You might also consider pursuing an accounting degree. You are getting some experience in it. Might as well attempt getting a degree in accounting and expanding your career options.

My website/blog has some information on it.

theaccountinglife.com
 
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