Hey guys,

Just a quick Accrual question...

Basically been given the following 'The business has received an invoice for £1350, dated 26th March 2007, for electricity used during the period 22 February 2007 to 25 March 2007'

right, Im just a bit confused.... I've been doing reading on Accrual accounting.... and from my research it seem to think that you put the charge in the accounts under the date the service finished... would this be 25 March?? or would I add up the number of days and split between the amount for each month? (the thing is were only recording the accounts for February in this example...

Thanks in advance....

CaptainForest

Since you only want February expense, you need to pro-rate your amount.

Since some of that 1350 was in fact accrued in February.

The total days outstanding of this bill is (Feb = 7 days March = 25 days; Total = 32 days)

So you take 7 / 32 x 1350 = 295 and expense that in February, and expense the rest (1350-295) 1055 in March.

DirtyRay

Ok great, so basically now would the 295 go under Electricity T-Account? or Accruals T-Account? Many Thanks

CaptainForest

The February JE would be:

Dr. Electricity Expense 295
Cr. AP 295

So you would add 295 to both the Electricity Expense T-account and the AP T-account

DirtyRay

Excellent, thank you very much.