Accrual and Reversals

In the video, we discuss the accrual of electricity expense.

[sarahemslie]

Thank you for explaining the reversal so clearly. At no point do my learning materials remind me that the bill will generate a Dr/Cr when it does finally arrive. Sanity saved, thanks!

[by]

Thank you very much for explain it so easily to understand.

[tangcaroline]

Thank you for sharing this video. I have a question: During a month-end accrued. What if the prior month's accrued amount is different (for example, less) when billed in the next month?

[amansingh]

why we can't do " Accrual Dr./ Cash-Bank Cr.?

[armywhammer-dcqk]

Wouldn't just doing Dr Exp Cr Accr. Exp in month 12 and then Dr Accr. Exp and Cr Bank when the bill arrives work? How can the expense be double counted if it was entered only once in month 12 and no times in month 1? Wouldnt doing this complete reversal in month 1 then make month 1 understated?

Edit: Nevermind! I think i get it. The accrual is just an estimate so we need to remove the estimate from our accounts and recognise the true value of the expense when the bill arrives in the next FY. What do we then do with the difference between the estimate and the actual that eventually gets posted into the next FY? Does this depend on materiality? And what if it is material?

[BLINKBOXHD]

If you get one bill (£120) for that one year period, how do you go about accruing that? Because if you do the journals for accruals and then reverse it once you get the bill at the end of the year, won't it still show a £120 cost at the end of the year? Wouldnt this be incorrect if the cost was incurred throughout the year?

[OmarAl]

Hi Magon,
Thanks for taking the time and wonderful explanation. I’m still struggling to grasp it fully.

If in 1st. Of next year I made the reversals. Now Electricity Expenses account is 0.

Assuming on 3rd of Jan, I receive 100 $ invoice of last yea’s electricity. I will debit Electricity Expenses account and Credit Accounts Payable.

At this point of Jan the next year, isn’t the account Electricity Expenses overstated? Since it has the $ 100 of last year, and the new Accrued Electricity expenses of the new period.