Accrued Income and Accrued Expenses

How is the interest due on a Note Payable determined when the issue date is in one fiscal period and the maturity date is in another?The formula is the same as that for determining the total interest on a note.

However, only the days from the date of issuance until the last day of the fiscal period are used in determining the interest. This is not the total interest due on the note, only partial interest until the last day of the fiscal period.

Which of the following might be an example of an accrued expense?

Interest on a Note Payable. Interest on a Note Payable is an example of an accrued expense.

What is the purpose of a reversing entry? A reversing entry is used at the beginning of a new fiscal period.

It decreases the balance in either Interest Income or Interest Expense so that when the Note Payable or Note Receivable is paid in full, the total amount of interest collected can be entered with no duplication. It is the most reliable way to ensure that interest income or interest expense is not overstated.

By making an adjusting entry,

all the revenue earned in the fiscal period will actually be reported in that fiscal period's financial records, even though it will not be received until a later date.

This could easily happen if the adjusting entry was left in the account (increasing the account balance), and then when the note was paid or received in full, the total amount of interest was again entered into the account.

By reversing the entry, the partial amount of interest is taken out of the account, and the full amount can be entered on the maturity date of the note.

What is a reversing entry?

A reversing entry is an entry made at the beginning of a new fiscal period to reverse an adjusting entry made in the previous fiscal period.

What is accrued revenue?

Accrued revenue is income that the business has earned in one fiscal period but didn't receive until the following fiscal period.

What do we call transactions that zero out all expense account and income account balances at the end of the fiscal period?

Closing entries. Closing entries are used to zero out the expense and income account balances at the end of the fiscal period so that those accounts have no balance at the beginning of the next fiscal period.

Which of the following might be an example of accrued income?

Interest income. Interest income can be an example of accrued income. It is money that is earned in one fiscal period but not received until a future fiscal period.

matching expenses with revenue .

Matching up revenue and expenses during the period in which they occurred

Why is it important for all income and expenses to be recorded in the fiscal period in which they occurred?

All of the income and expenses relating to the fiscal period are recorded in the fiscal period in which they were incurred in order to get an accurate net income/loss figure for the fiscal period. Accrued income and expenses must be recorded in the fiscal period in which they occurred so that the business will have an accurate net income/loss figure for the fiscal period

What is an accrued expense?

An accrued expense is an expense that was incurred in one fiscal period but not paid until a future fiscal period.

Why aren't Accounts Receivable considered accrued income?Accounts Receivable is an asset to the business, and the balances are carried forward into the next fiscal period.

The amount of the sale has already been posted to the Sales account, so income is, in effect, being considered in determining the net income or loss for the fiscal period.

Accrued interest is figured from the date that the Note Receivable was written until when?

The last day of the fiscal period.

all income accounts have credit balances, so if the amount of the adjusting entry in a previous fiscal period is entered into the Interest Income account, it will decrease that credit balance.

Therefore, the credit balance will correctly show the actual amount of interest income earned in the new period.

Why is it important to enter accrued income and expenses into the ledger accounts at the end of the fiscal period?If accrued income and expenses were not entered into the ledger accounts at the end of the fiscal period, the

business would not have an accurate picture of the net income or loss for the period.Accrued income would make the net income increase, and accrued expenses would make the net income decrease. Therefore, all income and expenses must be considered in determining the financial status of the business.

Accrued expenses

expenses that are incurred in one fiscal period but not paid until a later fiscal period.

One example of accrued revenue is

interest earned on a note receivable. This is the most common type of accrued income

A closing entry

simply closes out the account balance so the account will have a zero balance when the new fiscal period begins.