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Business Accounts Diagram Notes

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This is an extract of our Business Accounts Diagram document, which we sell as part of our Business Law and Practice Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.

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Year end adjustments - Accruals What is an accrual?
Where a business has had the benefit of something in one accounting period, but will not pay for it until the next accounting period. 1) Accrual items Electricity costs Wages

1) Accrual Items

2) Expense in Trial Balance

3) Amount of accrual

4) Expense in the P&L account

2) Expense in Trial Balance
PS50,000

3) Amount of accrual
PS2,000

4) Expense in P&L Account
PS52,000

PS120,000

PS25,000

PS145,000

5) Balance Sheet
PS2000 current liability
PS25,000 current liability

Location

In the Trial Balance sheet

What is it?

It is the category of expense that the accrual falls into

Location

In the Trial Balance sheet

What is it?

It is the figure in the trial balance corresponding to the category of expense that the accrual falls into.

Location

In the client instructions / brief

What is it?

It is the sum payable that has not yet been paid. This is in return for the benefit that has been received

Location

In the profit and loss account

What is it?

As the benefit has been taken, the expenses should be enlarged to reflect that you have, under accounting rules, not yet paid for the service until the next accounting period

Calculation

Expense in the trial balance (2) + Amount of accrual (3)
PS50,000 + PS2,000 = PS52,000

5) Entry onto the balance sheet

Location

In the balance sheet

What is it?

The amount of the accrual is entered as a current liability. As the money is due, but has not yet been paid, it is essentially a debt and therefore goes down as a liability

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