VCE Accounting Unit 3

1. 14.5
ACCRUED EXPENSES

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
14.5 ACCRUED EXPENSES
 An Accrued Expense occurs when an expense is incurred but has not been paid
when the business prepares its reports on balance-day.
 On balance-day, the expense remains unpaid
 E.g. On 15 January a firm receives a bill for $300 (plus GST) advertising in January
 At the end of the month (balance-day), the advertising has not been paid
 It will be repaid on 20th February
Balance-Day
15 January
Advertising of
$300 (plus GST)
has been incurred.
January February
$300 + GST
20 February
The advertising bill
plus GST is paid
for $330
Paid
To be paid in…
Reporting Period

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 On balance-day, the accrued expense is treated as:
1. Current Liability – the amount owed to the other business or party
2. Expense – the amount that has incurred (consumed) this period
Balance-
Day
January February
$300 + GST Paid
CURRENT LIABILITIY $300
LIABILITY $300
• There is a present obligation
to pay the advertising
• Arising from a past event –
being charged the
advertising
• Resulting in an outflow of
future economic benefits –
the advertising will be repaid
EXPENSE $300
EXPENSE $300
• Outflow of economic benefits
– the advertising has been
consumed
• There is an  in Liabilities –
the Accrued Advertising
account
• There is a  in Owner’s
Equity
14.5 ACCRUED EXPENSES
Balance Sheet at 31 January
Current Liabilities $
Accrued advertising 300
Income Statement January
Other Expenses $
Advertising expense 300

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
SQ7 X
Ex14.1 X
Ex14.3 X