How To Accrue Expenses to Last Year

This article addresses the concept of taking expense payments made this year and recognizing them for Income Statement purposes in the previous year.

To better explain, here is a scenario:

You received a services bill from a vendor that is dated January 5^th of 2023, however the services that were performed all occurred in December 2022.

After consulting with your CPA, you decide that you want to recognize this vendor expense in December 2022 in your books.

To accomplish this, you will need to create a pair of journal entries in your bookkeeping; the first journal entry will accrue this billed expense back to December 2022; this journal entry can be dated December 31, 2022.

The second journal entry will simply reverse the first journal entry; this one can be dated January 5, 2023. This reversal will simply offset the originally posted vendor bill that was dated January 5, 2023; so the net result (vendor bill + reversed journal entry = zero).

Before we begin an example here, you will need to create an “Accrued Expenses” liability type of account.

Now let’s begin our example:

XYZ Law Firm sent you a bill dated January 5, 2023 in the amount of $10,450; however, all of the legal services were performed in December 2022. You went ahead and posted this bill in your bookkeeping, dated January 5^th and paid it as well. Now you want to recognize this expense for December 2022, so here are the journal entries:

Journal Entry #1, dated December 2022:

Reversing Entry (#2), dated January 5, 2023:

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.