Question

Give an example of a service that a firm consumes before it is invoiced for the service and explain how it accounts for these costs. Make sure your answers identify the effects on both the Income Statement and the Statement of Financial Position.

Answer 1

Accrued expenses are costs for the future for which goods and services have already been sold by a corporation. They are also called accrued liabilities. Such forms of costs are measured on the balance sheet and typically included under current liabilities. They will be adjusted at the end of each accounting period and recognized on the balance sheet; adjustments will be used for documents of goods and services delivered but not yet invoiced.

Example: Utilities, telephone, and internet consumed for the month but an invoice was not issued until the end of the period.