Accrual accounting involves recording revenues and expenses when they are incurred, regardless of when cash is exchanged. This method follows the matching principle, which aims to match revenues with the expenses incurred to generate them. Here are some common accrual accounting entries:
1. Accrued Revenue
When revenue is earned but not yet received:
- Debit Accounts Receivable
- Credit Revenue
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-06-30 Accounts Receivable A/c 15,000 To Service Revenue A/c 15,000 (Being services rendered but not yet billed)
When the payment is received:
- Debit Cash/Bank
- Credit Accounts Receivable
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-07-10 Cash A/c 15,000 To Accounts Receivable A/c 15,000 (Being payment received for services rendered)
2. Accrued Expenses
When an expense is incurred but not yet paid:
- Debit Expense Account
- Credit Accrued Expenses (Liability)
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-06-30 Salaries Expense A/c 20,000 To Accrued Salaries A/c 20,000 (Being salaries accrued for the month)
When the expense is paid:
- Debit Accrued Expenses
- Credit Cash/Bank
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-07-05 Accrued Salaries A/c 20,000 To Bank A/c 20,000 (Being payment of accrued salaries)
3. Prepaid Expenses
When a payment is made in advance for an expense:
- Debit Prepaid Expense
- Credit Cash/Bank
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-06-01 Prepaid Rent A/c 12,000 To Bank A/c 12,000 (Being rent paid in advance for the year)
When the expense is recognized:
- Debit Expense Account
- Credit Prepaid Expense
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-07-01 Rent Expense A/c 1,000 To Prepaid Rent A/c 1,000 (Being monthly rent recognized from prepaid amount)
4. Unearned Revenue
When cash is received in advance for future revenue:
- Debit Cash/Bank
- Credit Unearned Revenue (Liability)
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-06-01 Cash A/c 10,000 To Unearned Revenue A/c 10,000 (Being advance payment received for future services)
When the revenue is earned:
- Debit Unearned Revenue
- Credit Revenue A/c
Example:
Date Particulars Debit (₹) Credit (₹) ------------------------------------------------------------------------ 2024-07-01 Unearned Revenue A/c 10,000 To Service Revenue A/c 10,000 (Being recognition of revenue earned from advance payment)
These entries help in ensuring that financial statements reflect the true financial position and performance of the business by recognizing revenues and expenses in the period in which they occur.
