Treatment of Accrued Expense

Hello, I wonder if there’s anyone out there who can tell me how to account for an accrued expense which has been earned but not billed as at the end of the accounting period.

I know I would have to journal the transaction. I’m thinking of my own case. I’ve worked on the accounts for a client until the year end in question, but I haven’t yet billed them. I recognise that’s a valid expensed item which should be accounted for.

I hope this is clear.

Thanks in anticipation.

It sounds like the kind of thing you’d use an auto-reversing journal for - I have the same situation in reverse, where I get a bill from my accountant during year X for services related to preparing my accounts for year X-1 and I want to recognise that expense in the previous year. What I do is journal to debit the expense code and credit accruals on the last day of year X-1, and set the journal auto-reverse date to the start of year X, to cancel out the debit later in the year from the actual bill.

For you it’s the other way round, you’d credit the income code and debit accruals at year end, and the auto-reverse at the next year start would debit the income code, and this will be netted off when you do bill them later in the year. In fact it might make more sense to set the auto reverse date to be when you actually bill them, so it doesn’t skew your current year P&L in the meantime.

Ah, I haven’t yet closed of the accounts as I’ve only just completed them for the year ending 31st December, 2019. so, I’m guessing I would debit the expense and credit accruals and then do a reverse entry for 1st January, 2020. would you agree?

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