What Are Examples of Accrued Expenses? How Are They Calculated?
Generally, all kinds of expenses that have benefited the business during a given accounting period but are not yet paid are considered as accrued expenses. This article will focus on the most common ones: accrued salaries, accrued interest expense, and accrued taxes.
Marigold Shopping Convenience has contractual store employees who are paid every week on Saturday. Since this store is situated in a classy suburban area, the authorities do not permit the store to open on Sundays because of the traffic occurring along private roads. In this case, the employees are only working 6 days a week. A monthly financial report is always prepared. The weekly payroll is $2,700.
The payroll is prepared every Saturday morning. Employees can collect their wages at exactly 4:00 at the afternoon, 2 hours before the store closes to the public. During the month of September 2009, the last Saturday payroll date is September 27. Since the employees have to work on September 29 and 30, and the two-day payroll is a part of the total September operating expenses, they are considered as salaries payable or accrued salaries at the end of month of September and are to be paid on the first Saturday payroll of October 2009. The employees can collect their wages for September 29 and 30 on October 4, 2009.
Before computing the accrued salaries, let us all remember that an account has two sides: The left or the DEBIT side, and right or the CREDIT side. Expenses are normally posted at its left side while liabilities are posted at its right side.
On September 30, 2009, the accountant will record the accrual as:
Salary Expenses are increased by placing a total of $5,400 ($2,700 multiplied by 2 days, September 29 and 30) on its left side while an account called Salaries Payable or Accrued Expenses will be created and placed at its right side with the same amount, $5,400)
Accrued Interest Expense
Just like any entity, Marigold Shopping Convenience obtains loans from banks to augment its cash flow for operations. During the current year, it is able to borrow funds from Herald Bank on September 1, 2009. The assistance granted by the bank is a six-month, 5% bank loan of $10,000. Based on the agreement, this loan will be paid at the end of February 2010.