Accrued Expenses and Revenue:
Closed or Not?
Q: Does accrued expenses and revenue need to be closed at the end of the accounting period?
First let's make sure we understand what accrued expenses and revenue is.Accrued expenses
are expenses that are owing. Actually "accrued" basically means not yet paid but owing. So accrued expenses is actually a liability
. For example, accrued rent. Or accrued salaries and wages.
Liabilities are permanent accounts
, which means they are never closed off at the end of the accounting period (cancelled out and started from zero).
Accrued expenses (a liability) is not closed off but rather simply included in the total of one's creditors account
is income that has been earned and is owing to our business. Such as accrued interest. It is an asset
Since assets are also a permanent account
, this is also not closed off.Revenue
, on the other hand, is income. And income is a temporary account
, meaning it needs to be closed off at the end of the period. The closing balance of revenue is cancelled out and transferred to another account to work out the profit for the year.
FYI I don't actually go over closing entries and adjusting entries in any detail on this site. This subject is only dealt with in my series of basic accounting books
Hope that helps.
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