Hi, thanks for your explanation. What I don't understand is that @3:45 why Blues painting expense of $40,000 would show up in 2022? $40,000 was expensed in 2021. Even if payment is made in 2022, it does not impact expense account as the journal entry will be like this. (Dr Accrued expense $40,000 / Cr Cash $40,000) Could you help me understand this?
Is the invoice processed as normal? We would enter it to in the system to same expense account we always do, correct? I'm assuming this is the "actual entry that will remain on the books. Thank you!
Sonia, yes, that’s correct. Enter the invoice as you normally do. Some accounts payable systems will automatically accrue and reverse invoices based on the invoice date. So, check to see how your accounting software handles payable accounting. The main thing to keep in mind is you’ll see the expense appear in the period it is incurred and not in a subsequent period. For example, if goods are purchased in December, that expense should appear in December and not January.
Fantastic example in excel, it really helps show mechanically how/why this reversing entry works. Thank you!
Glad it was helpful!
Hi, thanks for your explanation. What I don't understand is that @3:45 why Blues painting expense of $40,000 would show up in 2022? $40,000 was expensed in 2021. Even if payment is made in 2022, it does not impact expense account as the journal entry will be like this. (Dr Accrued expense $40,000 / Cr Cash $40,000) Could you help me understand this?
Thank you so much for this.
You are so welcome!
Great information, thank you sir
Thank you.
When the accrual is automatically reversed..does it leave a credit balance (neg) in FY22 expense account and that’s why it cancels out?
Is the invoice processed as normal? We would enter it to in the system to same expense account we always do, correct? I'm assuming this is the "actual entry that will remain on the books. Thank you!
Sonia, yes, that’s correct. Enter the invoice as you normally do. Some accounts payable systems will automatically accrue and reverse invoices based on the invoice date. So, check to see how your accounting software handles payable accounting. The main thing to keep in mind is you’ll see the expense appear in the period it is incurred and not in a subsequent period. For example, if goods are purchased in December, that expense should appear in December and not January.
@@CPAHallTalk Great, thanks for the information! Super helpful! 👍 Accounting can get confusing at times.