Question

How does the liability/expense entry in the accrual work?

Answer 1

Will try to make you understand this with the help of an example.
Suppose, an entity pays salaries and wages to it's employees on Friday for the
work done between Monday to Friday, i.e., on a weekly basis.
Amount of salaries and wages expense per week is $ 3000
This year, Dec 31 fell on Wednesday.
Therefore, emplyees will receive their payment on Jan 2, which is the first Friday of
the new year.
The entity prepares his final accounts on Dec 31 every year.
Now, as Monday, Tuesday and Wednesday fell in the current year itself,
this is an expense which the entity incurred in the current year but was not
able to pay off in the current year. This is known as "accrual of an expense".
So the amount of salaries and wages expense accrued is $ 1800 (i.e., $ 3000 x 3/5)
The entity will charge this amount in his income statement as current period's expense
and will also present the same amount in the "Liability" side of the balance sheet.
Entry which will be passed for adjusting this:
				Debit	Credit
Salaries and Wages Expense				$ 1800
To Salaries and Wages Payable					$ 1800
(Being expense accrued and yet to be paid off)