A company may have expenses that it pays periodically, such as every quarter. An accrued expense is an expense that a company has incurred that it has yet to pay. The accrual basis of accounting dictates that you must record an expense in the period in which it was incurred, regardless of when you pay it. You can prepare and record an accounting entry to reflect the expenses you incurred that you expect to pay later.
1. Determine from your accounting records the number of months for which you have not recorded or paid an expense, as well as the monthly amount of the expense. For example, assume you have not recorded or paid your utility bill for two months, and that the bill is $200 per month.
2. Multiply the number of months by the monthly amount to calculate the amount for which you will create an adjusting entry. In this example, multiply two by $200 to get $400, which is the amount for which you will create an adjusting entry.
3. Write the date you are recording the adjusting journal entry in the date column of a new entry in your accounting journal. In this example, if you are recording the adjusting entry on June 31, write “06-31” in the date column.
4. Write “Utility Expense” in the account description column, and write the amount of the incurred expense in the debit column on the first line of journal entry. The amount in the debit column increases an expense account. In this example, write “Utility Expense” in the account description column and “$400” in the debit column. This shows that you incurred a $400 utility expense during the period.
5. Write “Utilities Payable” with a left indent in the account description column, and write the same amount of the utility expense in the credit column on the second line of the journal entry. The amount in the credit column increases the utilities payable account. In this example, write “Utilities Payable” in the account description column and “$400” in the credit column. This shows that you owe $400 in utilities expense.
6. Write a description of the adjusting entry in the account description column on the third line of the entry. In this example, write “Record two months of accrued utilities expense.”
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