What is an Accrued Journal Entry?

An accrued journal entry is a type of accounting entry that records revenues or expenses when they are incurred, regardless of when the cash is actually received or paid.

It is typically made at the end of an accounting period to ensure that the financial statements accurately reflect the company’s financial position.

For example, an accrued expense journal entry is used to record expenses that have been incurred but not yet paid.

This entry typically involves debiting the relevant expense account and crediting an accrued liability account.

Accrued journal entries are a key component of accrual accounting, which is the preferred accounting method under generally accepted accounting principles (GAAP) and provides a more accurate financial picture than cash basis accounting.

About Journal Entry

Read here for additional info about journal entry.

Expense Accrued Journal Entry

An accrued expense journal entry is a process in accrual accounting that involves recording expenses incurred over one accounting period but not yet paid during that period.

This type of journal entry uses a double-entry method, meaning that you debit one account while crediting another.

The main components of an accrued expense journal entry are:

  • Debit: An expense account is debited, which increases the company’s expenses.
  • Credit: An accrued liabilities account is credited, which increases the company’s liabilities.

The purpose of recording accrued expenses is to anticipate expenses in advance and recognize them earlier than when they are billed.

This allows companies to accurately map out the money they owe and maintain a clear picture of their financial position.

Accrued expenses are typically current liabilities since the payments are generally due within one accounting period.

Let’s say a company incurs $5,000 in utility expenses in February but does not pay the bill until March 5th, the accrued expense journal entry would be recorded in the reporting period of February.

Debit: Utility Expense              $100
Credit:          Accrued Expenses         $100

This ensures that the company’s financial statements accurately reflect the expenses incurred during the accounting period, providing a more accurate picture of the company’s financial position.

Interest

An accrued interest journal entry is a type of adjusting journal entry made at the end of an accounting period to record the interest that has been incurred but not yet paid.

This entry is made to ensure that the interest expense is recognized in the period in which it is incurred, following the accrual accounting method.

For the borrower, accrued interest is recorded as an expense on the income statement and a current liability on the balance sheet, while for the lender, it is recorded as revenue and a current asset, respectively.

The specific accounts involved in the journal entry depend on whether the entity is the borrower or the lender.

Borrower:

Debit: Interest Expense                  $10,000
Credit:         Accrued interest Payable         $10,000

Lender:

Debit: Accrued Interest Receivable       $10,000
Credit:           Interest Income                 $10,000

Payroll

An accrued payroll journal entry is necessary when an employee has earned part of their salary but it will not be paid until the following month.

The entry typically involves a debit to the payroll expense account and a credit to the accrued payroll liability account.

Let’s say an employee has earned $1,000 in salary but it will not be paid until the following month, the journal entry would be a debit to the payroll expense account for $1,000 and a credit to the accrued payroll liability account for $1,000.

Debit: Salaries and Wages            $1,000
Credit: Accrued Expenses - Salaries         $1,000

This entry allows the company to recognize the expense in the period in which it is incurred, even though the cash payment will not be made until a later date.

Accrued Income Journal Entry

Accrued income is the income that a company has earned but has not yet received in the current accounting period.

It is recognized and recorded in the company’s journal entries before the cash payment has been received.

This typically occurs when a company has provided goods or services to a customer on credit, and the payment is pending.

The journal entry for accrued income involves crediting the income account and debiting an asset account, such as accounts receivable.

For example, if a company has earned $1,000 in commission but has not yet received the payment, the journal entry would involve crediting the commission income account and debiting the accounts receivable account.

Debit: Accounts Receivable - Commission   $1,000
Credit:    Revenue - Commission Income           $1,000

Bonus

An accrued bonus is a bonus that is contingent on performance, and it is recorded in the company’s financial books when the bonus is granted to an employee.

The process of recording an accrued bonus involves a journal entry, which includes debiting the bonus expense and crediting the accrued bonus liability.

The company records the estimated bonus amount as a liability on its balance sheet, typically under Accrued Liabilities or Accrued Expenses.

Simultaneously, the company records an expense in the income statement, usually under Salaries and Wages or a separate Bonus Expense line item.

Debit: Bonus Expense              $50,000
Credit:      Accrued Expenses               $50,000

Property Taxes

To record an accrued property taxes journal entry, you need to make an adjusting entry at the end of the accounting period to recognize the taxes incurred but not yet paid.

This entry will increase both the property taxes expense and the property taxes payable accounts.

Here’s a simple example of the journal entry:

Debit: Property Taxes Expense (Income Statement)
Credit: Property Taxes Payable (Balance Sheet)

This entry recognizes the expense in the period it is incurred and records the corresponding liability.

Accrued property taxes are recorded as a current liability on the balance sheet since they are usually payable in less than 12 months.

Accrued Commissions

An accrued commissions journal entry is an adjusting entry made at the end of an accounting period to recognize commission expenses and the corresponding commission liability on the balance sheet.

Commission expenses are recognized on the income statement, and the commission liability is recorded in the accrued liabilities account.

The typical journal entry for commission accrual involves debiting the Commission Expense account and crediting the Commission Payable or Accrued Liabilities account.

Let’s say a company has unadjusted commission expense of $400,000 and actual commission expense is $450,000, the company would record an entry to increase commission expense by $50,000, debiting the commission expense account for $50,000 and crediting the accrued commission account for $50,000.

Debit: Commission Expense                  $50,000
Credit;       Accrued Commission Payable            $50,000

Accrued commission accounting falls under the accrual basis, as it reflects commission expenses in the period when they are earned, which may not necessarily align with the actual payment date.

Customer Rebates

An accrued customer rebates journal entry is a financial record that recognizes the liability for customer rebates that have been incurred but not yet paid.

When a customer qualifies for a rebate, an accrual entry is made to account for the expected payment.

The entry typically involves debiting an accrual account and crediting a rebate liability account.

Let’s say a journal entry may include a debit to Rebates/discount and a credit to rebates payable to recognize the potential rebate liability.

This accounting practice ensures that the company’s financial statements reflect the obligation to pay the rebates, even though the actual payment has not been made.

Jason John Wethe
Latest posts by Jason John Wethe (see all)

Free Accounting Training

How I prepare & generate financial Statements in under an hour.

Email Address *

Scroll to Top