Preparation of month-end accruals ensures that revenues match expenses in the same accounting period. This is called the matching principle and the accrual method of accounting. Any company that uses the accrual method of accounting will follow this rule. An accrual entry should happen during the month in which the expense occurred. However, often the expense has not been paid. In essence, the accrual entry will allow this expense to be reflected in the financial statements.
Things You Will Need
Current month’s invoices
Chart of accounts
Gather all of the accounts payable unpaid invoices.
Contact every department about invoices that they may have. Sometimes all of the necessary invoices do not make it to the accounts payable clerk. For example, the sales team may have an unpaid expense relating to a conference in New York, but the invoice is dated for this month. Or the invoice may have been partially paid, but the remainder is still an expense for this month. To avoid an inflation of expenses in future months, find any invoices that may be waiting for approval by contacting other departments about their invoices.
Calculate how much the company plans to pay for a certain expense. There are scenarios where there is not an invoice available, although you know there will be an invoice produced later. Look at what has been historically paid for that expense, and use that information to calculate the amount.
Classify each invoice according to account number. Look at each invoice and indicate which accrual account and expense account it affects. Use the company’s chart of accounts to locate the account numbers that will be used later. If the account that should be used is unclear, look at older invoices similar to the one that you are trying to identify and see what account that invoice was posted to. If there is still ambiguity, check with a senior level accountant.
Locate the account numbers on each invoice. Debit the expense accounts and credit the accrual accounts. Repeat until all accruals are complete.