Creditors (Accounts Payable)

According to the accrual principle, you record assets in the month in which they are acquired even though the payment is not made until a later month. Also, you record expenses in the month in which they are incurred, even though payment is not made until later. In practice, the principle is not followed strictly. As with the distinction between assets and expenses explained in a previous section, the accrual principle may be disregarded if the effect on income is not material. For example, telephone bills and other utility bills are not received until after the end of the month to which they apply. If you apply the accrual principle strictly, you would debit an expense account and credit Accrued Liabilities in the month in which the telephone calls were made or the electricity consumed. Most entities do not do this. Instead, they record the expense in the month in which the bill is paid. Since the amount tends to be approximately the same from one month to the next, this departure from the "pure" accrual principle usually has no material effect on the accounts.

You can apply the same shortcut to other relatively unimportant items. We already have mentioned the practice of debiting supplies and similar assets to an expense account in the month of purchase. Expenses for repairs or maintenance done by outside contractors may be recorded in the month when the invoice is received, rather than in the month in which the work was done.