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Accrued Expenses

Why and How to accrue for expenses

Cody Hall avatar
Written by Cody Hall
Updated over a week ago

Why Accrue for an Expense?

Accrual accounting is essential for providing an accurate financial picture of your business. By accruing expenses, you:

  1. Match Expenses to Revenue: Ensures expenses are recorded in the same period as the revenues they help generate, giving a clearer view of profitability.

  2. Improve Financial Accuracy: Reflects all incurred expenses, even if they haven’t been paid yet, preventing underreporting of liabilities.

  3. Comply with Accounting Standards: Aligns with Generally Accepted Accounting Principles (GAAP) which require accrual accounting for accurate financial reporting.

How to Accrue for an Expense

Follow these steps to properly accrue for an expense:

  1. Identify the Expense: Determine which expenses need to be accrued. These are typically expenses that have been incurred but not yet paid by the end of the accounting period (legal fees, salaries, utilities, etc).

  2. Calculate the Accrual Amount: Estimate the amount of the expense. Use available invoices, past bills, or contracts to determine the most accurate amount.

  3. Record the Journal Entry:

    • Debit the Expense Account: Increase the expense account for the amount of the accrued expense. This reflects that the expense has been incurred.

    • Credit the Accrued Liability Account: Increase the accrued liabilities account to recognize the obligation to pay the expense in the future.

How To Accrue an Expense in Puzzle

To accrue an expense in Puzzle, follow these steps:

  1. Go to the Accounting page and select Manual Journal

  2. Select Accrual basis reports from the drop down

  3. Input the posting date (usually end of the period)

  4. Select and auto-reversing date (usually beginning of the next period)

  5. Debit the Expense Account (legal) and credit the Accrued Expense account

  6. Post the entry

Tips for Accruing Expenses

  • Stay Organized: Keep a record of all accrued expenses and regularly review them to ensure accuracy.

  • Regular Reviews: Periodically review your accruals to ensure they reflect current obligations.

  • Use Accounting Software: Leverage accounting software to automate and track accruals, reducing the risk of errors.

Accruing expenses helps maintain accurate financial records, ensuring your business reflects its true financial position at any given time.

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