Mastering Accruals: Understanding and Applying the Accruals Concept in Accounting

• Accounting
• Further Education (Key Stage 5)

Accruals: Understanding and Applying the Accruals Concept in Accounting

Learning Objective

At the end of the lesson, you will be able to understand, explain, and apply the accruals concept of accounting, including accruing expenditure and journal entries.

Introduce the learning objective to the students and set the expectations for what they will achieve by the end of the lesson.

What do you already know about the accruals concept in accounting?

Slide 1: Introduction to Accruals

Definition of accruals: Accruals are the recognition of revenues and expenses in the accounting records before the associated cash is received or paid.

Provide a clear definition of accruals to establish the foundation of the concept.

Slide 2: Importance of Accruals

Accruals ensure that financial statements reflect the economic reality of a business by matching revenues and expenses to the period in which they are earned or incurred.

Explain why accruals are important in providing accurate financial information.

Slide 3: Examples of Accrued Expenditure

Examples of accrued expenditure include salaries payable, interest payable, and utility expenses accrued but not yet paid.

Provide specific examples of accrued expenditure to illustrate the concept.

Slide 4: Calculating Accrued Expenditure

Accrued expenditure is calculated by determining the amount owed for a particular expense at the end of an accounting period.

Explain the calculation process for determining accrued expenditure.

Slide 5: Journal Entry for Accrued Expenditure

To record accrued expenditure, a journal entry is made by debiting the expense account and crediting the corresponding liability account.

Describe the correct journal entry for recording accrued expenditure.

Slide 6: Interactive Exercise

Calculate the accrued expenditure for salaries payable based on the provided information and identify the correct journal entry.

Engage the students with an interactive exercise to apply their knowledge and reinforce the concept.

Slide 7: Solution - Accrued Expenditure Calculation

The accrued expenditure for salaries payable is $5,000. This amount represents the unpaid salaries at the end of the accounting period.

Present the solution to the exercise and explain the calculation.

Slide 8: Solution - Journal Entry

Debit Salaries Expense $5,000 and credit Salaries Payable $5,000 to record the accrued expenditure for unpaid salaries.

Provide the correct journal entry for the exercise and explain the reasoning behind it.

Slide 9: Accrued Expenditure vs. Prepaid Expenses

Highlight the difference between accrued expenditure and prepaid expenses, which are expenses paid in advance.

Clarify the distinction between accrued expenditure and prepaid expenses to avoid confusion.

Slide 10: Advantages of Accrual Accounting

Accrual accounting provides a more accurate representation of a company's financial position and performance over cash accounting.

Discuss the advantages of using accrual accounting in financial reporting.

Slide 11: Disadvantages of Accrual Accounting

Accrual accounting requires more complex record-keeping and may not reflect cash flow accurately.

Address the potential drawbacks of accrual accounting to provide a balanced perspective.

Slide 12: Real-World Example 1

Present a real-world scenario where accruals are applied, such as recognizing revenue for services provided but not yet billed.

Provide a practical example to demonstrate the application of accruals in real-life situations.

Slide 13: Real-World Example 2

Share another real-world example, such as accruing expenses for goods received but not yet invoiced.

Continue demonstrating the practical application of accruals with a different scenario.

Slide 14: Accruals in Financial Statements

Explain how accruals impact the income statement, balance sheet, and statement of cash flows.

Highlight the influence of accruals on different financial statements.

Slide 15: Review Question 1

What is the purpose of accruals in accounting?

Engage the students in a review question to assess their understanding of the main purpose of accruals.

Slide 16: Review Question 2

What is the journal entry for recording accrued expenditure?

Pose a review question regarding the correct journal entry for accrued expenditure to reinforce the concept.

Slide 17: Practical Application Exercise

Analyze a given scenario and calculate the accrued expenditure. Then, record the appropriate journal entry.

Provide a practical exercise that requires students to apply their knowledge independently.

Slide 18: Solution - Practical Application Exercise

Present the solution to the practical application exercise, explaining the calculated accrued expenditure and the corresponding journal entry.

Discuss the solution to the practical exercise, emphasizing the correct calculation and journal entry.

Slide 19: Summary

Recap key points: accruals recognize revenues and expenses before cash is received or paid, accrued expenditure is calculated and recorded with a journal entry, and accrual accounting provides a more accurate financial picture.

Summarize the main concepts covered in the lesson to reinforce understanding.

Slide 20: Final Thoughts

Encourage further exploration of accruals in accounting and emphasize their importance in financial reporting.

Conclude the lesson with final thoughts and encourage students to delve deeper into the topic.

Write down 3 things you learned in this lesson.

Have students enter three things they learned in this lesson. With this they can indicate their own learning efficiency of this lesson.

Write down 2 things you want to know more about.

Here, students enter two things they would like to know more about. This not only increases involvement, but also gives them more ownership.

Ask 1 question about something you haven't quite understood yet.

The students indicate here (in question form) with which part of the material they still have difficulty. For the teacher, this not only provides insight into the extent to which the students understand/master the material, but also a good starting point for the next lesson.