![]() ![]() It becomes clear that you won’t be able to pay the landlord for the first month of rent until she gets back in touch with you. March 1st rolls around, and there’s still no word from her. You look over the lease and realize it doesn’t actually specify how the landlord would like to get paid or where to send the money. She won’t pick up the phone or answer her email, and her answering machine says she’s in Cuba. In fact, you’re having trouble getting ahold of them. So far, so good.įast forward to the end of the month (let’s say it’s February), and you still haven’t heard from the landlord about payment. You’ve signed a lease and agreed to pay the landlord $3,000 a month, picked up your keys, and started moving in your equipment. Let’s say your business, a combination bookshop, record store, and taqueria, rents a brand new street-level retail space. How to record adjusting journal entries for accrued expenses Talking to a CPA can help you choose the method that’s best for you. Your accounting method greatly affects your financial reports and how you understand the financial health of your business. Using the accrual method, you would record a loss of $2,000 for the reporting period ($2,000 in income minus $4,000 in accounts payable). Using the cash basis method, the profit for the reporting period would be $500 ($1,000 in income minus $500 in fees). Received $1,000 from a client for a project that was invoiced last month.Paid $500 in fees for a bill you received last month.Sent a $2,000 invoice for a deposit for a project you intend to start the following month.Received a bill for $4,000 in developer fees for work done this month.Sent out an invoice for $2,000 for a web design project completed this month.Recording accrued expenses (as opposed to sticking with cash basis accounting) can have a big impact on how you understand your business’s financial position and cash flow.įor example, let’s say you did all of the following in the same month: ![]() But with accrual, the expenses show up on your income statement in June as your employee purchases the supplies. If you use cash accounting, you won’t record accrued expenses because you’ll only record the expenses once the employee is paid in July. Your accounting method determines in which month the expenses are recorded. To illustrate this, let’s say an employee of yours is purchasing supplies for a staff party in June, for which they’ll be reimbursed on their July paycheck. Accrual** accounting** recognizes revenue when it’s earned and expenses when they’re incurred (but not paid). ![]()
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