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1. Is it true that “accrue or accrual” simply means outstanding which could be either meant outstanding income or outstanding expense?
2. Accrued income refers to when we have already earned the income which means we have already perform our part but still has not received the money yet?
3. The accounting entry would be debit accrued income as current asset in SOFP and credit sales as income in SOPL?
4. Accrued expense refers to when we have already incurred the expense which means we have received the service from others but stilp has not paid the money yet?
5. The accounting entry would be debit purchase as expense in SOPL and credit accrued expense as current liability in SOFP?
6. Is it also true that accrued tax means when we have estimated the tax for the year based on our pre-period tax calculations but it is not our actual tax because we do not know the actual profits and we will know them at the end of the year. I have further question that how many times a company pay its taxes during the year because it seems to me business is paying more than once. How can i reconcile with this problem!?
Thanks for your efforts….
1. Yes, although it it is referring to income the question usually will make this clear. Otherwise (and more commonly) it refers to expenses.
2. Yes
3. Yes, although it depends what the income was for. If it was (for example) rental income then we credit rental income, not sales.
4. Yes
5. Yes (as I explain in full in my free lectures on accruals and prepayments).
6. Yes it is true. There is no rule as to how many payments there will be during the year. There will certainly be the payment of the previous years tax that was owing. In addition they might make a payment in advance of some of the tax for the current year (in which case only the balance would still be owing at the end of the year.)
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