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Billing statement of account sample for Accounting

what's up guys welcome back to the channel where i teach you everything you need to know about accounting audit personal finance the cpa lifestyle and everything in between if that sounds awesome to you make sure to hit that subscribe button below and welcome to the accounting channel accounts payable and accrued expenses can be a really tricky accounting topic to grasp to hopefully make this a little easier for you to understand i'm going to cover the following in this video what are accounts payable what are accrued expenses the key differences between these two liability accounts the journal entries for each of these liability accounts and why these two liability accounts play such a big role in ensuring that the financial statements are properly stated if that sounds awesome to you smash that like button below and let's hop into it accounts payable by definition accounts payable is the amounts we owe to vendors or creditors for goods or services purchased on credit this simply means that we purchase services or goods from a company or person at a predetermined price that we have not paid for yet our company will receive an invoice from the vendor or supplier for the goods or services performed the invoice will provide the detail of the goods or services received and the cost of those items the key thing to remember with accounts payable is that we received a good or a service that is documented at a predetermined price with an invoice that we have not yet paid for since we still have to pay for this invoice it will be part of our ap aging subsidiary ledger accounts payable are classified as current liabilities on a company's balance sheet because they are due within one year now let's hop over to accrued expenses accrued expenses also known as accrued liabilities are very similar to accounts payable accrued expenses are liabilities on a company's balance sheet as they reflect amounts owed to company or person for goods or services provided under the accrual method of accounting and generally accepted accounting principles or gaap companies must record the accrued liability on the balance sheet in order to reflect the liability for the services rendered key thing to remember with accruals is that it does not matter if the vendor or supplier has provided us an invoice we still need to accrue the liability on the balance sheet i can tell you guys from experience in auditing many different companies a lot of the times companies don't receive an invoice from the supplier vendor or service provider for a week two or a month after the service is provided regardless of how long it takes a vendor supplier or service provider to provide an invoice to a company the company must record the balance sheet when the service is provided in order to show the users of the financial statements that we owe someone money for services provided to us accruals are used by companies in order to reflect the liability on the balance sheet that needs to be paid to a vendor or service provider at a future point in time there are many examples of accrued liabilities that are recorded on the company's balance sheet these can include accrued inventory for goods received that we don't have an invoice for accrued payroll for wages that we still owe to our employees accrued interest on loans which is interest we incurred on our debt but haven't paid for cruels are expenses that we incurred that we have not yet paid for and there is no underlying invoice or documentation for at the end of each month companies will typically have an accrued expense schedule that details out every single accrued expense they have and the estimated calculation behind each one accrued expenses are classified as current liabilities on a company's balance sheet as they are due within one year the key differences between accounts payable and accrued expenses is that accrued expenses involve estimating an amount owed to a vendor supplier or service provider for services rendered that we have not yet paid for the key word with accruals is estimating we have to estimate an expense that was provided to us and put a liability on the balance sheet as we have not received an actual invoice for the goods or services provided to us we need to record an accrued expense on our balance sheet to properly state that we owe someone for the goods or services rather to us during the month and close process if a good or service was provided to us one of the following two things should happen if we have an invoice for the goods or services rendered it will be included in accounts payable and within the apa gene if we don't have an invoice for the goods or services rendered we will calculate an estimate to be recorded in accrued expenses now let's go over the journal entries for accounts payable and accrued expenses remember from my previous videos knowing when to debit or credit an account is the key to understanding journal entries to record accounts payable expense accounts have a normal debit balance in order to increase an expense account we will debit this account accounts payable have a normal credit balance in order to increase accounts payable we will need to credit accounts payable if we are buying inventory then the debit would need to go to inventory and a credit to accounts payable not expense capitalizing certain assets on the balance sheet instead of directly expensing them can be a little bit of a tricky topic so let me know in the comments below i can get into why exactly we would capitalize certain assets and why other things should be directly expensed let's now get into what happens when we actually pay for the accounts payable when we make a payment we will debit accounts payable and credit cash once we pay for the goods or services what exactly do we have left in our financials we have no liability left on our financials because we paid for it our cash on hand is now lower because we use the cash we had to pay for the expense and lastly the expense we initially recorded when we debited expense and credited accounts payable will end up in our net income or net loss which will then flow into our retainer needs now to record an accrued expense we will record the following journal entries we will record a debit to expense and a credit to accrued expenses remember for recruit expenses we don't have an invoice yet so we need to estimate how much we're going to record for the crude expense liability when we make the payment for the accrual we will now record the following we will record a debit to accrued expenses and a credit to cash a lot of times in practice the amount of the accrual we recorded will not actually equal to the amount we pay remember accruals are estimates let's say for example we record an accrual in december for a utility bill in the amount of 100 when we finally get the utility bill in january we find out that the bill came out to 110 when we make the payment we will record the following we will record a debit to the accrued expense account to get rid of the liability we initially recorded we will credit cash for 110 for the amount we actually paid and finally we will need to record an expense for 10 as we initially only recorded 100 as that was the initial estimate so we will record a debit to expense for 10 keep in mind that with the crude expenses they are estimates so whatever we initially record when we actually make a payment it's gonna be slightly off from what we originally recorded so there will need to be a thing that we call in practice called a true up you will need to true up the expense to whatever you actually pay for let's say for example the actual utility bill came out for 90 then we're gonna record the following we're gonna record a debit to the accrued expense to get rid of the liability off the balance sheet a credit for the actual cash we made and then it's gonna be a credit to the expense to true up the expense that we recorded in january since the actual expense was less than we initially estimated recording accrued expenses and accounts payable at the end of each reporting period is critical in making sure that the financial statements are properly stated if we don't properly record accrued expenses or accounts payable at the end of each reporting period there is a possibility that our liabilities on our balance sheet and the expenses on our income statement will be understated all right guys that's gonna be it for the video today if you found value in this video please make sure to hit the like button below and also guys don't forget to add me on any social media platform you use and if you are struggling with any accounting or audit topic please make sure to leave a comment below and i will definitely address it in a future video and you guys know what it is until next time work hard dress well peace