![]() ![]() 1) and the “matching principle?”Įxpenses must be matched with the revenue that helped generate them. Remember in our second installment when we discussed “ GAAP” (Scary Word No. And, just like that, you have an accrued expense. This is an expense incurred for which you receive no invoice. Well, your accounts payable clerk receives wages, correct? He or she has been working all week, so you presently incur payroll costs however, your accounts payable clerk receive wages until the following week after payroll processes. But, if we drill down a bit further, another transaction occurs here…one for which you do not have an invoice. This is a clear example of accounts payable at work. Just like that, a transaction records for a cost that is incurred. The clerk enters information from the invoice into your accounts payable system with a due date based on the payment terms granted to you by the vendor. You take the invoice and give it to your accounts payable clerk. Let’s take a look at a very common scenario: You order your weekly supply of beer ( remember, you own a bar), and included in the shipment is the invoice from the vendor. Transactions like these do not record right away. 9: Accrued Expenses.Īccrued expenses, sometimes called accrued liabilities, are costs incurred by the business without an invoice. So how do you account for these items? Well, here’s your answer - Scary Word No. In truth, you actually do incur the costs associated with these goods or services. ![]() But, what happens when we incur costs, but we did not receive the invoice from our vendor?ĭoes this mean that you don’t have to record the liability? ( yeah, wishful thinking) Remember, you should time future cash flows from receivables with future vendor payments. This means you will need the extra time offered through vendor credit. It is likely that you’ll also grant credit to your customers. There is time to make payment for the purchases of these goods.Here’s a Standard Transaction/Expense Process: Today, we explore a related topic: Accrued Expenses. We also saw that it is usually one of the first liabilities listed on your balance sheet. We saw that accounts payable is a current liability. In our last installment, we learned all about Accounts Payable. ![]()
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