From the course: Advanced Bookkeeping Techniques
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Recording expenses with liabilities that slowly build up
From the course: Advanced Bookkeeping Techniques
Recording expenses with liabilities that slowly build up
- The obligation to pay for some business expenses builds up slowly over time. Examples are interest, taxes, and wages. The obligation to pay these expenses builds up and then periodically the amount owing is paid in cash. For example, employees work and earn wages on a daily or even an hourly basis, but these wages aren't paid immediately. The employee probably won't be paid until the end of a two-week pay period. Income tax is another example. As each day goes by and a company generates income, that company also generates an expense associated with the income tax that will have to be paid on that income. But that income tax might not be paid for several months. The most relentless example is interest expense. The second a company borrows money, the interest expense starts to build. And for some loans, it might be the case that the interest builds up and is not paid until years later. Application of the matching…
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