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Adjusting Entry for Accrued Expenses

Accrued expenses refer to expenses that are already incurred but have not yet been paid. At the end of
period, accountants should make sure that they are properly recorded in the books of the company.
Here's the rule. If a company incurred, used, or consumed all or part of an expense, that expense or part
of it should be properly recognized even if it has not yet been paid.
If such has not been recognized, then an adjusting entry is necessary.

Pro-Forma Entry
The pro-forma adjusting entry to record an accrued expense is:
mmm dd Expense account*


Liability account**


*Appropriate expense account (such as Utilities Expense, Rent Expense, Interest Expense, etc.)
**Appropriate liability account (Utilities Payable, Rent Payable, Interest Payable, Accounts Payable, etc.)

For Example
For the month of December 2014, Gray Electronic Repair Services used a total of $1,800 worth of
electricity and water. The company received the bills on January 10, 2015. When should the expense be
recorded, December 2014 or January 2015?
Answer in December 2014. According to the accrual concept of accounting, expenses are recognized
when incurred regardless of when paid. The amount above pertains to utilities used in December.
Therefore, if no entry was made for it in December then an adjusting entry is necessary.
Dec 31 Utilities Expense


Utilities Payable


In the adjusting entry above, Utilities Expense is debited to recognize the expense and Utilities Payable to
record a liability since the amount is yet to be paid.

Here are some more examples.

More Examples: Adjusting Entries for Accrued Expense

Example 1: VIRON Company entered into a rental agreement to use the premises of DON's building.
The agreement states that VIRON will pay monthly rentals of $1,500. The lease started on December 1,
2014. On December 31, the rent for the month has not yet been paid and no record for rent expense was
In this case, VIRON Company already incurred (consumed/used) the expense. Even if it has not yet been
paid, it should be recorded as an expense. The necessary adjusting entry would be:
Dec 31 Rent Expense


Rent Payable


Example 2: VIRON Company borrowed $6,000 at 12% interest on August 1, 2014. The amount will be
paid after 1 year. At the end of December, the end of the accounting period, no entry was entered in the
journal to take up the interest.
Let's analyze the above transaction.
VIRON will be paying $6,000 principal plus $720 interest after a year. The $720 interest covers 1 year. At
the end of December, a part of that is already incurred, i.e. $720 x 5/12 or $300. That pertains to interest
for 5 months, from August 1 to December 31. The adjusting entry would be:
Dec 31 Interest Expense
Interest Payable


Expenses are recognized when incurred regardless of when paid. What you need to remember here is
this: when it has been consumed or used and no entry was made to record the expense, then there is a
need for an adjusting entry.