accounting flow of accrued expense?

[raja asad]

Question salary per month is 1000
salary paid on 2nd day of next month.
accounting period january to december

Reuired show the complete accounting flow of above entries on 31st december?

Asnwer
on 31st of december the following entry is already appear in the books

salaries A/C 11000
cash A/C 11000

Further more on 31st of december we shall have to pass an adjusting entry of 1000 accrued expense.

salaries A/C 1000
salaries payable A/C 1000

MY CONCERN
i would like to know from u guys that what will be the closing and reverse entries on the 1st of next of year if any?

[tariqab]

Dear Raja

You are recording salaries expenses cash basis for whole year except month of December here you are making accruel entry.

If you want to continue this cash basis accounting, you have to reverse that closing entry on 01-01-2009

[raja asad]

please tell ma that what will be the closing and reverse entries?

[tariqab]

salaries payable A/C 1000 Dr.
salaries A/C 1000 Cr.

This would be the reversal entry at the beginning of 2009.

Regards
Tariq

[raja asad]

tariq bhai reversal entry jo hoti hay vo closing entry ki hoti hay ya adjusting entry ki?

[Nauman]

Expense is being recorded on cash basis the whole year except for the month of December?

Anyways if you have passed the following entry at close of December i.e.

Salaries A/C 1,000 Dr.
Salaries Payable A/C 1,000 Cr.

This would be reversed subsequently in January by

Salaries Payable A/C 1,000 Dr.
Cash / Bank A/C 1,000 Cr.

[tariqab]

Dear Nauman

This is payment entry(salary payment), what you are suggesting, not reversal of closing/adjusting entry.

If you will pass that entry in (suppose 05-jan-2009)then there will be no salary expense in the month of Janaury 2009.

Regards
Tariq

[Nauman]

Arent we paying the salary of December?

[raja asad]

tariq bhai january main tota 2000 pay karnay hain.
jab december ki payment karain gay to entry ho gi

salary payable A/C 1000
cash A/C 1000

aur jab january ki payment karain gay to entry ho gi

salaries A/C 1000
cash A/C 1000

am i right?

[maani]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by raja asad</i>
<br />Question salary per month is 1000
salary paid on 2nd day of next month.
accounting period january to december

Reuired show the complete accounting flow of above entries on 31st december?

Asnwer
on 31st of december the following entry is already appear in the books

salaries A/C 11000
cash A/C 11000

Further more on 31st of december we shall have to pass an adjusting entry of 1000 accrued expense.

salaries A/C 1000
salaries payable A/C 1000

MY CONCERN
i would like to know from u guys that what will be the closing and reverse entries on the 1st of next of year if any?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


Hi Asad,

Infact in organizations where accrual concept is being followed, at each month end expenses are accrued, and on the beginning of next month adjustments are made when actual cash payment is made for that expense....

proper scheme of entries will be like this, whether it is last month of your financial year or other

At month end 31.08.2008 (salary for the month of August 2008)

Dr Salary Expense (Expense Account)
Cr Accrued Expenses/Salary payable (Liability Account)
This is the salary for the month of August, therefore the expense should be recognized in August. In general, cash payment of salary for the month of August will be made at the beginning of September 2008....
when actual cash/bank payment will be made to employees, following entry will be passed

Dr Accrued Expense (Liability Account)
Cr Cash/Bank (Asset Account)

So in your question same scheme of entries must be followed

31.12.2008
Dr Salary expense 1,000
Cr Accrued expenses/salary payable 1,000
Salary expense recognized for the month of Dec 2008

02.01.2009
Dr Accrued expenses/salary payable 1,000
Cr Cash/Bank 1,000

Need more!

[raja asad]

hi maani
why u did'nt discuss about closing and reverse entries?

[maani]

Hi Asad,

in your question, when salary for the month of Dec was accrued, it would be

Dr Salary Expense 1000
Cr Accrued Expenses 1000
Now ledger / T Account of your Salary expense will be showing a "Debit Balance" of Rs. 12,000. Closing entry will be

Dr Profit and Loss A/c 12000
Cr Salary Expense 12000
So in this way you have transferred Dr 12000 balance to P&L Account from Salary Expense A/c....now your Expense Account has been closed by transferring its balance to Profit & Loss Account....
Accrued Expenses A/c is still showing a Credit Balance of Rs. 1000, this will be presented under Current Liabilities in the Balance Sheet of 31 December

In January when cash payment will be made to employees for the month of December, the entry will be

Dr Accured Expenses 1000
Cr Cash/Bank 1000
This entry reflects settlement of liability/reversal of accrued expenses....

satisfied??????????

[raja asad]

hi maani,

no doubt ur answer is logical. but i m doubtful only because of accountancy book of SOHAIL AFZAL.
Aap nay jo enty batai hai k

on 31st Dec

salaries A/C 1000
salary payable A/C 1000

he says k 1st jan ko aap is entry ko reverse karo gay.
this reversing point is confusing me.
Any logic of this reversal?

[maani]

Hi asad,

are you satisfied with 31st Dec's entry i.e.

Dr Salary expense 1000
Cr Salary payable 1000

Now use your mind, n think on 1st January, a complete reversal of this entry is logical?
The accounts have been closed on 31st Dec....your Salary Expense A/c (Ledger) has nil balance after closing....Now if you make reversal on 01 January i.e.

Dr Salary payable 1000
Cr Salary expense 1000

Before above entry your salary expense A/c has a nil balance....and after above entry your Salary Expense A/c has a Credit Balance of 1000....Salary expense is an Expense A/c, how does it have a Credit Balance?

This reversal is not logical....doesn't makes any sense....

About your book, i haven't any idea, but if such reversal is there in your book then its interesting for me to see this book....

Satisfied?????????

Ask more if still confused