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Accrual entry

RAVIKUMAR (STUDENT) (108 Points)

07 January 2013

suppose a company does not get electricity bill for aug , at aug 31 I can record accrual entry as

dr elec exp 2000 (approx amt based on experience)

cr accrued elec payable 2000

now if for example on 24 sep the Elec Board sends bill for the period 1 aug to 24 sep for 3300 , then how should i record it ??????

From what i learnt abt accruals, is that at month end I record

dr elec exp 2000

cr accrued elec payable 2000

on 1 sep i reverse the entry

then for example on 3 rd sep if i get the correct bill of 2200 i record

dr elec exp 2200

cr payable elec 2200

when i pay i record

dr payable elec 2200

cr cash / bank 2200

But this elec bill for period more than 1 month ie 1 aug to 24 sep is confusing me...should i record the entry on 24 sept or 30 sept ...and also what will be the correct entries ....pls help...thank u

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8 Replies

Pravin Prajapat (C.A. Final Student) (136 Points)
Replied 07 January 2013

As per my knowledge

Accrual /Outstanding etc. these are the adjustment that we have to make at the end of the year so that our Matching Concept not get disturb

say.....if Electricity bill for March month is unknown so we can passed the adjustment entry as par our reasonable Estimation. and this should have to be reversed in next year.

In the your problem , can pass only single entry for both month (Aug & sept) as & when you received the actual bill for Electricity.

If you want to go for solving this problem through Adjusment entry then you can ...., but it will not make any sanse overthere.

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RAVIKUMAR (STUDENT) (108 Points)
Replied 07 January 2013

Originally posted by : Pravin Prajapat

As per my knowledge

Accrual /Outstanding etc. these are the adjustment that we have to make at the end of the year so that our Matching Concept not get disturb

say.....if Electricity bill for March month is unknown so we can passed the adjustment entry as par our reasonable Estimation. and this should have to be reversed in next year.

In the your problem , can pass only single entry for both month (Aug & sept) as & when you received the actual bill for Electricity.

If you want to go for solving this problem through Adjusment entry then you can ...., but it will not make any sanse overthere.

the year end is dec 31 . so u mean to say, we need not record an entry for aug and instead record the entry for both aug and sept on 24 sept (ie the date when the bill is received ? will that not be an understating of expenses for aug ???

jafer (studies) (194 Points)
Replied 07 January 2013

Hi,

The entry u r passing elec. exp ac dr To elec. payable ac, is itself is an outstanding entry. Y u have to make entry like elec. exp ac dr To accrued elec. payable ac.

Sonu Kumar (Account Manager) (665 Points)
Replied 08 January 2013

on 24 Sept..

Electr Exp Dr - 1100

To Bank A/c - 1100

(Elect Charges for the Period of 1 Sept to 24 Sept Paid)

CA, CS(Professional) ROHAN (B.com CA CS Sr officer -Finance & MIS ) (309 Points)
Replied 08 January 2013

Normally the utility bills are for a period of 1 month or 2 months

The normal accounting entry in case u have to go for monthly closing of books should be ( by creating provision ,since bill is not received)

on 31st aug

Electricity exp a/c -Dr

To Provision for electricity exp a/c ( approx amount on estimation basis)

on 1st sep or whenever u receive the actual bill ,u shud reverse the entry as

Provision for expenses a/c -Dr ( provision amount)

Electricity exp a/c (short provision to be charged to expenses)

To vendor/ state electricity board a/c ( actual amount of expenses available from the bill)

To P&L A/c (in case of writing back excess provision)

On actual payment of bill

Vendor/electricity board a/c -Dr (actual amount)

To Cash/bank

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CA, CS(Professional) ROHAN (B.com CA CS Sr officer -Finance & MIS ) (309 Points)
Replied 08 January 2013

CA D.C. Bansal (Accounts Head) (283 Points)
Replied 08 January 2013

Pass the following enties:

1. For provision of Expenses

Electricity Exp.............................Dr. 2,000/-

To Outstanding Exp 2,000/-

2. For Booking of Acual Bills

Oustanding Exp...........................Dr. 2,000/-

Electricity Exp..............................Dr. 1,300/-

To Electricity Exp. Payable 3,300/-

3. For Payment of Bills

Electricity Exp Payable...............Dr. 3,300/-

To Cash/Bank 3,300/-

While passing these entries difference in prov and actual will automatically load to the current month

Pravin Prajapat (C.A. Final Student) (136 Points)
Replied 10 January 2013

Originally posted by : RAVIKUMAR

Friend Ravi......

Let me cleared about your Accounting Policy ,

It is Monthly Basis or Yearly
If Yearly then:- You don't have to make Any Adjustment entry for that Problem. You need to record that problem before 31st Dec. so that All Expenses for this year shall be recorded and Matching Concept will not get disturb.

If Monthly:- Since you are bothering about Monthly segreegation of expenses if its required for your organisation specifically then off course you have to pass journal Entries given below

For August Month

as of 31st August

Electricity Exp. A/c Dr. (Estimated Amt)

to Liability for Electricity/ O/s Electricity/Electricity Payable A/c

(It will result to mape Actual Profits or Loss for August Months)

When you received bill (i.e. in Sept.)

Liability for Electricity/ O/s Electricity/Electricity Payable A/c Dr.

to Bank/Cash A/c

(if any difference between Bills and Provision made by you, that will go to the P&L A/c )

For Sept. Month

Since you are receiving bill in Sept itself so just passed below one:-

Electricity Exp. A.c Dr.

to Bank

Originally posted by : Pravin Prajapat

As per my knowledge

Accrual /Outstanding etc. these are the adjustment that we have to make at the end of the year so that our Matching Concept not get disturb

say.....if Electricity bill for March month is unknown so we can passed the adjustment entry as par our reasonable Estimation. and this should have to be reversed in next year.

In the your problem , can pass only single entry for both month (Aug & sept) as & when you received the actual bill for Electricity.

If you want to go for solving this problem through Adjusment entry then you can ...., but it will not make any sanse overthere.

the year end is dec 31 . so u mean to say, we need not record an entry for aug and instead record the entry for both aug and sept on 24 sept (ie the date when the bill is received ? will that not be an understating of expenses for aug ???