Accrued Expenses
(Part 2)


Previous lesson: Accrued Expenses (Part 1)
Next lesson: Accounting Cycle



Okay, so George Burnham, the owner of George's Catering, has an accrued expense - he owes $200 to the telephone company for the telephone bill for April...

j) George Burnham pays the amount owing to the telephone company on the 13th of May.

Assets & Liabilities Decrease

Again the easiest part of this transaction is the cash component. Cash of $200 is definitely paid. So bank decreases. Bank is an asset, and assets increase on the debit side and decrease on the credit side. So we credit bank.

Our creditor (liability) exists currently in our records at $200, on the credit side. If we are now paying the telephone company, this means that we owe them less. Creditors decrease. Creditors are a type of liability, and liabilities increase on the credit side and decrease on the debit side. So creditors are debited.

Here's the entry:

Note that the debit of $200 to the creditor account causes it to amount to zero – in other words, we are showing that the debt towards the telephone company no longer exists.

Let's go over one more example:

k) George sees that he has quite a bit of spare cash, and so decides to pay back some of the loan from the bank. He writes out a check for $4,000. What happens to our equation?

The answer is identical to what happens when we pay off a creditor (as in the first example above), in that both our bank as well as the liability are going to decrease. Obviously the only difference is that this time our loan will decrease, not the creditor.

Assets & Liabilities Decrease

Bank is an asset and decreases on the credit side.

Creditors is a liability and decreases on the debit side.

The accounting entry is thus:

The loan is not reduced to zero (as with the creditor) but to $1,000. In other words, we are showing that we still owe $1,000.

Once again, in summary, you can see that:

For every transaction there are two entries.
For every transaction there is a debit.
For every transaction there is a credit.
There are no exceptions.

It bears repeating: The debits and credits are based wholly on the accounting equation:



Simple, hey?

Not simple? Okay, not to worry - just go back and restudy the lessons you didn't fully feel good about. Troubled with this monster called debits and credits? Go back to the lesson called Debits and Credits: What They Really Mean, or even to an earlier lesson (if needed).

In our next section we are going to take a step back and look at the big picture in accounting, the Accounting Cycle - the series of actions a bookkeeper or accountant takes to record, categorize and present the financial information of a business.

Sorry to tell you, but that does not, however, mean we're done with debits and credits. We'll be covering them here and there throughout the remainder of the online lessons. Not that there's anything wrong with debits and credits, right? Right. The monster has been slain... okay, not quite... but he's definitely hurting...

If you have come this far and really get what we did, then you know enough right now about debits and credits to debit or credit virtually anything in the subject (well almost)! And that's a lot more than most accounting students!

So well done for getting this far! You are doing very, very well.


Return to Double Entry Accounting

Return to the Home Page





Previous lesson: Accrued Expenses (Part 1)
Next lesson: Accounting Cycle



Enjoying this Website?
Help Support it with a Donation

OR...



Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Journal Entry - Payment on Account
Question: What would be the entries in the journal if the problem is like this: "made payments on account, 17,000.00" ? Solution: Here is the entry …

Debit or Credit Accrued Expenses?
Q: If the amount has been debited into accrued expenses, do we need to credit it after making the payment (so that the balance would be zero in …


Comments

Have your say about what you just read! Leave me a comment in the box below.

Advertise on ventoup.ru

privacy policy




Related pages


books on accounting for beginnersdefinition of cogsamt calculation formulaexample of manufacturing overheadexamples of managerial accounting reportsretained earning examplecogs equationchanges in owners equityanother word for bookkeeperdefine cashbookbad debts recoveredtally journal entriesbank reconciliation statement procedureexcel test for beginnerscash flow statement format indirect methodremove vat calculationbalance sheet format for proprietorship business in excelcredits debitsjournalofaccountancy10 step accounting cycleselling inventory journal entryjournal entries for fixed assets accountingincome summary appears on which financial statementself balancing ledgerssouth african vat calculatorhow to calculate prime cost per unitaccruals journal entryexamples of debit and credit entriesfinding cogsstatement of owner equityworking out gross profit marginliability synonymantonym of adjustwhat does a debit balance meanlifo and fifo accountingwhat are retained earningbad debt expense entryhow to determine stockholders equitysundry payments definitioncalculating fifo and lifohow to figure out ending inventoryaccounting clerk practice testaccrued rent journal entrybad debts written off balance sheettotal cogscredit debit ledgerfinancial statement of pldtyear end adjustments journal entriesmeaning of tally in accountingdouble column cash book examplebasic accounting concepts pdfbad debt write off journal entryreturn on owners equitywhat is indirect laborsource document accounting definitionadecco assessment testsynonym for interestspayable ledger control accountgross profit method of inventoryadjusting entries examplesmeaning of accrual accountinga trial balance lists accounts in which ordermulti step income statement templatelifo methodsweighted average vs fifowhat does accrued income meanfour types of adjusting entriesmeaning of ledger balanceretained profit formulajournal ledger trial balance solved examplesdefine sundriesmeaning of accrual basisequation for cogshow to prepare fund flow statement with example