Example of accruals

Example of accruals

According to the accrual concept the transaction is recorded in the books of account as and when it happens and not on the bases of cash payment. Therefore when organization has received the benefit against item it will be recorded in the books of accounts irrespective of payment. The unpaid amount against received benefit is liability of the organization.

Example # 1

At the year end the ABC Company has not paid the rent for the month of December i.e. $ 18,000 and the payment will be made in January 2015. The transaction will be recorded as under

Date	Particulars	Dr	Cr
31 Dec ,2014	Rent a/c	18,000
31 Dec ,2014	Rent payable a/c		18,000

Example # 2

ABC & CO paid has not paid the utilities bill as the bill will be collected next month but meter reading shows that ABC has consumed 5000 unit and per unit price is $ 5. The transaction will be recorded in the books of account by debiting utilities account (being increase in expenses) and crediting utilities payable (being liability or increase in liability)

Date	Particulars	Dr	Cr
31 Dec ,2014	Utilities a/c	25,000
31 Dec ,2014	Utilities Payable a/c		25,000

In next year when the utilities will be paid the following entry will be entered.

Date	Particulars	Dr	Cr
31 Jan ,2015	Utilities payable a/c	25,000
31 Jan ,2015	Cash a/c		25,000