Accrued Management Fees
Understanding Accruals
In F2014 we identified $50,000 in management fees to be accrued. A JE was entered at the end of F2014 debiting our management fee account and crediting our accrued liability account. In July 2015 a wire transfer was made to pay the management fee. The wire was entered like a cheque in QB so that it came out of our bank account and recorded against the accrued liability account.
Our accountant is now looking for a second JE to show the payment. The example they sent was a debit to the accrued liability account and a credit to our bank account. If I enter as such then it looks like we paid $100,000 against accrued charges and have an additional $50,000 being deducted from our bank account. We've either missed a step in the middle or the final JE should be coming from different accounts. Any assistance would be appreciated.
Let's define what an accrual is. An accrual is for expenses that have been incurred but not reflected in your records yet ... or for revenues you've earned but not booked yet.
Therefore, most accruals are actually reversed at the beginning of the fiscal year or prior to the actual being booked. What's left showing in the "expenses" in the current fiscal year
For example using your example, you booked:
DEBIT Management fees $50,000
CREDIT Accrued Liabilities $50,000
To accrue management fees owing at year-end
I think you need to reverse your accrual and book the payment of the management fee. I think that is what the accountant is looking for but without seeing your books, it's just my best guess. It would look like this:
DEDIT Accrued Liabilities $50,000
CREBIT Management fees $50,000
To reverse prior year accrual for management fees
DEBIT Management fees $50,000
CREDIT Payroll Payable $50,000 (I won't bother with the applicable payroll taxes in this example but you do need to record them and pay them)
To record management fees owing
DEBIT Payroll Payable $50,000
CREDIT Cash in Bank $50,000
To payout management fees
Again this is just my best guess at what the accountant is looking for. When in doubt, it is best to actually speak with accountant. They don't bite and most actually like that you get clarification so you do the entries correctly.
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