Accrual Basis Questions

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accrual basis

by Bita
(NY)

On October 1, your calendar year company, which is on the accrual basis, signs a $15,000 painting contract and makes a $5,000 advance, which you record in Painting Expense. If, on December 31, management tells you that 20% of the work has been completed, do you debit or credit the painting expense by $2,000?

Hello Bita,

Thank you for your question.

As 20% of $15,000 is $3,000 and painting expense was already debited $5,000, you would credit the painting expense by $2,000 in order to get to the actual $3,000 expense.

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Proper Entry for Vacation Accrual

by Katrina
(Hamilton, Ontario, CA)

After reviewing my companys' past payroll journals I have found all accrued vacation is being expensed at the time it is accrued.

I have always used a payroll clearing account at time of accrual then expensed when the vacation is paid out.

Which is the correct method?

Thank you for your question.

I use a payroll clearing account for the accrual and expense the vacation when it is paid out. I believe this is typical of a cash basis transaction.

Does anyone out there use a different method?

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