Incurred Expenses Journal Entry
Incurred expenses are costs that a business has incurred but not yet paid by the end of an accounting period. Recording these expenses accurately is crucial for maintaining correct financial records.
Scenario:
A business incurs various expenses such as rent, utilities, and salaries amounting to ₹50,000 for the month, but payment will be made in the following month.
Recording Incurred Expenses
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Rent Expense A/c | 20,000 | |
| Utilities Expense A/c | 15,000 | |
| Salaries Expense A/c | 15,000 | |
| To Accrued Expenses A/c | 50,000 | |
| (Being expenses incurred but not yet paid) |
Explanation:
- Rent Expense A/c is debited to record the rent cost for the period.
- Utilities Expense A/c is debited to record the utilities cost for the period.
- Salaries Expense A/c is debited to record the salaries cost for the period.
- Accrued Expenses A/c is credited to record the total liability for these incurred but unpaid expenses.
Adjusting Entry for Incurred Expenses
When the expenses are paid in the following period, the entry would be:
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Accrued Expenses A/c | 50,000 | |
| To Cash/Bank A/c | 50,000 | |
| (Being payment made for previously incurred expenses) |
Explanation:
- Accrued Expenses A/c is debited to eliminate the liability recorded for the incurred expenses.
- Cash/Bank A/c is credited to reflect the cash outflow for the payment of these expenses.
