1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 9-3 Accrued Expenses

2. CENTURY 21 ACCOUNTING © Thomson/South-Western JOURNALIZING ACCRUED EXPENSES Expenses incurred in one fiscal period but not paid until a later fiscal period are called accrued expenses Four types of accrued expenses: Accrued interest expense Accrued salary expense Accrued employer payroll taxes expense Accrued federal income tax expense 2 LESSON 9-3

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 9-3 Principal Interest Rate Time as Fraction of Year Interest for 15 Days  = 1.Determine the amount of accrued interest. 2.Debit the expense account. 3.Credit the liability account. JOURNALIZING ACCRUED INTEREST EXPENSE page 272 1 2 3 $7,500.00  10%  = $31.25 15 360 On December 31, Appliance Center has a 60-day, 10% note payable for $7,500, dated December 16. On December 31, Appliance Center owes 15 days worth of interest.

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 9-3 1.Debit the liability account. 2.Credit the expense account. REVERSING ENTRY FOR ACCRUED INTEREST page 273 1 2 To prepare the accounts for the next year Appliance Center records a reversing entry for accrued interest expense. This divides the interest expense between the two fiscal periods in which they were incurred

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 9-3 Notes Payable 2/137,500.001/1 Bal.7,500.00 Interest Expense 2/13125.001/1 Bal.31.25 Principal Interest Rate Time as Fraction of Year Total Interest Due  = 1.Calculate total interest due at maturity. 2.Debit Notes Payable, $7,500.00. 3.Debit Interest Expense, $125.00. (Credit Cash, $7,625.00.) 4.Determine the interest expense for the current period. PAYMENT OF NOTE AT MATURITY page 273 1 2 3 $7,500.00  10%  = $125.00 60 360 Interest Expense Recorded in Previous Period Total Interest Expense for the Note Interest Expense Recorded in Current Period – = $125.00– = $93.75 $31.254

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 9-3 1.Debit the expense accounts. 2.Credit the liability accounts. JOURNALIZING ACCRUED SALARY EXPENSE page 274 1 2 On December 31, Appliance Center owes $1,560 of salaries to employees who work in its three departments. To determine the adjusting entry, Appliance Center must prepare the payroll register. The following information is found on the payroll register:

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 9-3 1.Debit the liability accounts. 2.Credit the expense accounts. REVERSING ENTRY FOR ACCRUED SALARY page 275 1 2 A reversing entry is made at the beginning of the new fiscal period.

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 9-3 1.Debit the expense account. 2.Credit the liability accounts. JOURNALIZING ACCRUED EMPLOYER PAYROLL TAXES EXPENSE page 276 1 2 Just like a regular payroll, Appliance Center must record the employer payroll tax expense related to the accrued payroll entry. The information is obtained from the payroll register and the unemployment taxes computation.

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 9-3 1.Debit the liability accounts. 2.Credit the expense account. REVERSING ENTRY FOR ACCRUED EMPLOYER PAYROLL TAXES page 276 1 2

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 9-3 JOURNALIZING ACCRUED FEDERAL INCOME TAX EXPENSE  Corporations must pay federal income tax on net income.  Quarterly estimated amounts are paid  At the end of a year, it revises its income tax estimate for any unpaid federal income tax  An adjusting entry is made for the balance owed  During the year, cash will be paid for accrued income tax expense for the previous year plus periodic payments for the current year’s income tax expense  To avoid confusing the amount of tax expense recorded for each of the years & to provide year-to-date income tax expense information, companies do not reverse this adjusting entry

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 9-3 1.Debit the expense account. 2.Credit the liability account. JOURNALIZING ACCRUED FEDERAL INCOME TAX EXPENSE page 277 1 2 On December 31, Appliance Center’s records show that quarterly income tax payments have been made for a total of $9,000. On December 31, Appliance Center estimates that its income tax will be $10,000. Thus, the accrued federal income tax remaining to be paid is $1,000.

12. CENTURY 21 ACCOUNTING © Thomson/South-Western 12 LESSON 9-3 TERM REVIEW accrued expenses page 279