People often confuse and do not understand the meaning of accrued expense and accrued revenue well. Expenses in general are any sums of money paid by individuals, institutions, and companies; with the aim of achieving a specific purpose or obtaining a specific service or a specific commodity, the expenses differ in their nature. There are expenses that institutions pay to obtain the commodities, which are in exchange for purchasing commodities, and the other type of expenses may be in exchange for obtaining the products, such as the company paying money to process A specific commodity or to carry out a specific production process, no institution can do the work required of it without paying money, to get the money you must pay the money, and in this article we will show you what is accrued expense and accrued revenue in some detail.
What is the accrued expense?
They are the expenses that are recognized in the accounting books before they are paid, and they are in return for receiving goods or services on the account, as they are recorded in the same period in which they were received. Corporate stack offers you the best accounting software.
Accrued expense includes many forms of expense, such as buying merchandise on the account, interest on loans, taxes, etc.
They represent all services and resources obtained and entered into the operations of the company, and are not paid until later,
This is in contrast to upfront expenses that are paid before full resources or services are received.
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Examples of Accrued Expense
The most famous examples of Accrued Expense are employee salaries, which the company pays on the first day of the following month for services received in the previous month,
And accrued expenses on loans, which are paid after the company receives the loan from the bank and takes advantage of it.
How Are Accrued Expenses accounted for?
As for the way Accrued Expenses are accounted for, they are recorded in the accounting period in which those expenses were incurred, so we appear in the company’s balance sheet as one of the current liabilities
We would like to point out to you that Accrued Expenses are just estimates, meaning that the supplier’s invoice itself may differ from those estimates in the future.
What is accrued revenue?
It is a term given to revenue obtained by providing a good or service, but without receiving cash in exchange for it, and this revenue is recorded as receivables in the balance sheet to show the amount of money that customers owe.
For example, accrued revenue is often recorded by companies working on long-term projects, such as construction or major engineering projects, and companies in the aerospace and defense sectors may receive this revenue when each piece of military equipment is delivered.
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Types of Accrued Expenses and Revenues
As for the types of Accrued Expenses and Revenues, we find that there are a number of forms of Accrued Expenses, and they are:
- Salaries payable
They are the wages that workers receive in one accounting period, that is, they are not paid until a later accounting period.
- Interest payable
It means interest expense that has accrued and has not yet been paid.
As for accrued revenue, there are two common forms of it:
- Interest revenue
Which means the income obtained or earned from the investments made by the company.
- Accounts receivable
Which means money owed to a particular company for a number of goods or services that have been acquired but not yet paid for.