For an expense that was accrued last month, what action is needed in the next month?

When an expense has been accrued in the previous month, it indicates that the expense was recognized in the financial records before the actual cash payment was made. In the next month, to accurately reflect the transaction in the accounts, an accrual reversal is typically necessary. This action helps to eliminate the previously recorded expense from the current period's financial statements, allowing for proper recording of the actual cash transaction when it occurs.

When reversing an accrual, the typical entry would involve debiting the expense account to remove the accrual and crediting the liability account that was set up when the accrual was made. This ensures that the expense is not counted more than once when the cash payment is recorded. By doing this, the financial statements will reflect accurate expenses in the month they are incurred and cash flow in the month the payment is made.

Other choices do not achieve this accurate representation of financial transactions. An adjustment entry typically refers to correcting entries needed for errors or misstatements, while doing nothing would leave the accrued expense on the books erroneously. Debiting cash and crediting expense incorrectly suggests an immediate recognition of the expense without considering the prior accrual that must be reversed. Thus, the accrual reversal is vital for maintaining the integrity of the financial records