Certain expenses may have been incurred during the financial year, but will only be paid in the next financial year.

Examples of such expenses is where accounts or invoices have been received for accounting fees, advertising, rent, rates and taxes, water and electricity, etc., which are applicable to the financial year, but are not yet paid at the end of the financial year.

- The expense account must be adjusted so that the expense account represents the expenses for the full financial year or 12 consecutive months (accounting periods or reporting periods).

The amount by which the expense account is outstanding, will increase the amount of the expense at the end of the financial year. At the end of the financial year a liability is created - Accrued or outstanding expenses, because the amount of the expense is consumed or used but not yet paid.

- It is owed to the party who has supplied the expense item, which has already been used (consumed) during the financial year.

To Identify and Calculate Outstanding (Accrued) Expenses:

Identify the Outstanding Expenses - For example, when analysing the figures on the pre-adjustment trial balance, it is discovered that the telephone expenses paid for the current financial year is 3300. The telephone account for 300 of the last month of the financial year is received, but not yet paid.

- The expense of 300 needs to be recorded to the Accrued / Outstanding Expenses Account.

To Adjust Outstanding (Accrued) Expenses:

1. Click on the Batch Entry icon, or click on the Input→Batch Entry menu option.
   - Keyboard Access: Press the F2 key on your keyboard. Alternatively, you may press the Alt+I+B keys on your keyboard.
   The Batch Type Selection screen will be displayed.
2. Select the General Journal.
3. Click on the Open button. The Batch Entry Transaction screen for the General Journal will be displayed.
   - If the correct contra account is not displayed on the Batch Type Selection screen, or if you have not yet set the batch up; or if your requirements should change, click on the F10: Setup icon, or press the F10 key on your keyboard.
   - It is recommended that the Amount Entry field be set to allow both (debit and credit).
4. Enter the transaction in the batch. After entering the transactions in the general journal, the transactions are as follows:
   
   - Since no Tax is applicable to these transactions, you may select to hide the tax column, Exclusive and Inclusive icons, as well as the lookup facility in the Setup Options for the General Journal, as in this example.
   - It is not necessary to balance the batch, if you have entered debit transactions for the same amount as for credit transactions, the net total of all transactions (debits minus credits) and the reference total for the entire batch (journal) should be zero.
5. Click on the F9: Process icon, or press the F9 key on your keyboard, to change the alias.
   - This will help you if you wish to identify a specific batch to generate a batch type report, or if you wish to export posted batches to a file.
6. Click on the F8: List icon, or press the F8 key on your keyboard, to list the batch.
   - It is a good idea to list the batch, and check the entries on the batch thoroughly. If there are any errors, you may edit the batch before posting it.
7. Click on the F6: Post icon, or press the F6 key on your keyboard, to post (update) the batch to the ledger.

After posting the transactions the T-Account View of the transactions should reflect as follows:

1. Income Statement Accounts:
   
2. Balance Sheet Accounts:
   
   

The expense for the telephone is recognised and recorded in the expense accounts which will result that the net profit will be decreased by the expense of 300, which is not yet paid as at the end of the financial year (28 February). It has also increased the current liabilities, as it is an expense which is payable in the new financial year. An amount of 3600 will be recognised as an expense and not 3300.

The amount that should have been paid for the financial year is the amount on the pre-adjustment trail balance plus the amount of the outstanding expense not yet paid. The expenses are increased (debited) and current liabilities are increased (credited).

- Debits - Expenses = Credits - Liability

— digidan 2006/11/03 06:53