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Steps in an Account Reconciliation for Accrued Expenses

Steps in an Account Reconciliation for Accrued Expenses

A small business that operates on accrual basis accounting matches up income and expenses into the period they are actually incurred, regardless of when money changes hands. This accounting method helps to improve the accuracy of a company's reported net income. Accounting entries are made to either accrue expenses to the current period that have not yet been paid or defer them to the next period if they were paid early. Accrued expenses include all purchases for anything other than assets that have not been paid for by the end of the period. They should be reconciled to ensure that the entries are correct and complete.


Compare Account Balance Items to Invoices

The most important part of reconciling the accrued expenses balance is to ensure that the amounts recorded are correct and complete. Print off the account listing for accrued expenses and identify the accruals that make up the balance. In most cases, you will receive the corresponding invoice in the following month. Match the accounting entry to the invoice, ensuring that the amount is correct and that the expense was actually incurred before the date of the reconciliation. If the invoice includes expenses from multiple months, recalculate the amount that belongs in the periods before the reconciliation date. Make adjusting journal entries to correct any accrual errors.


Search All Invoices Received in Following Month

To find accruals that may have been missed at the end of the period, review all invoices received in the following period and determine when the expense was incurred. For example, if the period end you are reconciling is December and, you search through all of January's invoices and find one for office supplies shipped in December, that amount should be accrued at the end of December. Add any additional accrued expenses to the current balance.


Compare Current Year to Prior Year

There are some expenses that you may not be billed for in a timely manner that you may have missed. Compare the current period's accrual expenses to the prior year's to assess if there are any items accrued for last year that you may have missed this year. For example, a coffee supplier may bring you monthly supplies but only bill you quarterly. If you accrued an amount for coffee last year, you can determine if you have received coffee this year that you have not yet been billed for.


Call Vendors

If you haven't been billed for expenses incurred in the accrual period and cannot reliably estimate them, call the vendor to get an accurate billing amount. Be certain that the vendor is including all sales taxes and miscellaneous fees and charges in the number. If possible, have the vendor fax or email a copy of the estimate to you so that you can keep it with your financial statement documentation.