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Here’s the step-by-step process to record this in the system:
1. At the Time of Expense Incurrence (before payment is made)
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Create Other expense documents from the Accounting module.
In the main tab, add Accural Accrual type as the transaction type
When recording an accrued expense, the following entry should be made:
- Debit: Expense Account (e.g., Rent, Utilities, Services)
You can create a separate GL account, such as "Rent Expense," instead of grouping it with other expenses for better classification.
- Credit: Accrued Expenses / Accounts Payable (Liability)
You can use a "Current Liability" GL, such as "Accounts Payable," or classify it under "Other Current Liabilities" as needed.
2. When the
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Create a Bank/Cash payment document from the Money module.
In the main tab, keep the transaction type as Others, and in the payment details tab, fill in the GL account used in the Other expense document i.e. Other current liabilities.
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invoice is received
a) Reverse the expense
Once the supplier’s invoice is received, the accrual must be reversed to avoid duplicating the expense. The reversal is recorded as the opposite of the initial accrual, reversing the liability and remove the expense.
DR Accrued Liabilities
CR Expenses
Create the document either by using the Generate option from the initial document or by manually creating an Other Expense document and filling in the required details.
This ensures that only the actual invoice creates the expense and payable balance in the accounts.
b) Recording of Supplier's Invoice
Create an Invoice Received document for the same expense. Enter the relevant details (supplier, date, amount, and VAT if applicable), and assign the correct Payables GL account to record the liability
The entry will be
DR Other operating expenses
CR Other current payable (Can be selected as needed)
The reversal and the Invoice Received document offset each other, effectively canceling the expense while recording the liability to pay the supplier. Please note that, due to accrual accounting, the initially recorded expense represents the actual expense.
3. When the Payment is Made
Create a Bank/Cash Payment document by using the Generate option from the Invoice Received document, or create a new Bank Payment document manually from the Money module.
Once the Bank/Cash Payment Document is posted, the following accounting entry will be generated:
Debit: Accrued Expenses / Accounts Payable Other Current Payables (This clears the liability that was recorded when the expense was initially recognized)
Credit: Cash/ Bank (This reflects the actual payment made for the expense)
This ensures the liability is properly settled, and the financial statements accurately reflect the transaction.
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