Accruals

Most Accountants in preparing year end figures will accrue for expenses incurred on invoices not yet received. Telephone is often the best example of this, but Audit, Accountancy, Gas and Electricity are also good examples. For franchised dealers Bonuses and Commissions are also anticipated income or expenditure for which you may have to wait and for which you may want to Accrue.

Many Bookkeepers do not like them because they are another item that needs controlling and that is additional work in an often hard pressed department !

So how do they work. If we take Telephone as a good example and lets say that your year starts in January and your telephone bill is in at the end of March. You anticipate the bill will be £ 4500 and you want to “charge” January and February accounts with £ 1500 each. The postings would go like this:

January Journal              Telephone Costs                           1500.00 DR

                                           Telephone Accruals                     1500.00 CR

February Journal            Telephone Costs                          1500.00 DR

                                           Telephone Accruals                     1500.00 CR

Now in March you are expecting the invoice, so rather than post a further accrual you will post the actual invoice. When it arrives it is £ 4600.00 so your accrual has nearly been right! Your postings this month are slightly different because you have the accrual to deal with as well. They would look like this:

March Journal                 Telephone Costs                           4600.00 DR (Actual invoice posted via P/L)

And now for the invoice accrual reversal

                                            Telephone Accruals                     3000.00 DR

                                            Telephone Costs                          3000.00 CR

The net effect of this in March is to have £ 1600 posted to the month being £ 4600 less £ 3000.

So your telephone invoice came in, in March for £ 4600 and you charged

January              1500.00

February           1500.00

March                1600.00                     Total                4600.00

Within Peak there is an automated routine for doing this.

When you go into this program you click Add at the bottom of the screen. The next screen is where you would input how you want the journal to be executed. You are first asked for the day of the month the journal takes place – here it is the first of the month. Then you are asked to say a start date and a finish date – in this case period 1 year 03 is the start date and period 12 year 03 is the finish date. Finally you enter the months in which the journal takes place –

Y = Yes this month

N = No not this month

R = Reverse the previous journals.

So by entering Y Y R you are accruing in month 1 and 2 and reversing in month 3 by entering R. All you need to do after that is to post the invoice when it comes in.

I would strongly advise that you keep a log of the automatic journals that you do. This way you can periodically check the nominal codes used to ensure that your accruals are taking place properly and that you are posting the invoice in the right month. Occasionally if an invoice comes in at a different time you may need to reverse a journal and re do it manually, or you could just post the invoice in the expected month.

On saving the Accrual a code is given to the Journal AUT001. If you ever want to edit the journal highlight and OK to re-enter and edit. Below are the 2 screens that show the journals