What is purchase accrual?

[nagesh]

Please explain purchase accrual?

[danish hameedi]

<u><b>Accrued Expense</b></u>

An expense that has occurred but the transaction has not been entered in the accounting records. Accordingly an adjusting entry is made to debit the appropriate expense account and to credit a liability account such as Accrued Expenses Payable or Accounts Payable.

<u><b>Accrued Expenses Payable</b></u>

A liability account that reflects the estimated amount a company owes for expenses that occurred, but have not yet been paid nor recorded through a routine transaction.

<u><b>Accrued Liability</b></u>

The amount a company owes for expenses or losses incurred that have not yet been paid nor recorded through a routine transaction.

[admin]

First of all we will try to understand accounting methods Cash Accounting and Accrual Accounting.

<b>Cash Accounting:</b> Transaction will be recorded in books once cash is received or paid.

<b>Accrual Accounting:</b> Transaction will be recorded when any sale or purchase event occurred even yet no cash received or paid.

So we can say the major difference is the timing of transaction recording as both methods will record the transaction at any point in time.

<b>Example: 1 (Purchase / Expense) Liability/Payables </b>
Toyota motor?s has purchased tyres on 01-Jan-2008 and amount will be paid on March 15. In cash accounting the transaction will be recorded on 15th March as on that date the cash is paid while the tyres were used on production lines since purchase. So our expenses and revenue is not reflecting accurate picture.
In accrual we will record a transaction as on date of purchase even cash is not yet paid and will book the liability. This will show us the exact picture of our business.

<b>Example: 1 (Sale) Receivables </b>
Toyota motor?s has soled a car on 01-Jan-08 but will receive cash in Feb. So in cash accounting they will have to wait to record the transaction till the cash is not received. While in accrual they will book receivable on the date the car was being sold.

I hope this will clear the confusion.

[dburla]

Very good explanations this helped me to understand too.

thanks