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A company's annual property taxes are estimated at $6,000, paid at year-end, and it prepares monthly statements. What month-end adjusting entry records one month's accrued tax?
ADebit Taxes Expense $500; credit Taxes Payable $500
BDebit Taxes Expense $500; credit Prepaid Taxes $500
CDebit Taxes Expense $6,000; credit Taxes Payable $6,000
DDebit Taxes Payable $500; credit Taxes Expense $500
Answer & Solution
Correct answer: A. Debit Taxes Expense $500; credit Taxes Payable $500
1. Monthly accrued tax $= 6{,}000 \div 12 = 500$.
2. The expense is debited $\$500$; since payment is not yet due, the liability Taxes Payable is credited $\$500$.
3. So A is correct.
4. B credits a prepaid asset (this is an accrual, not a deferral); C records the full year; D reverses the entry.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.5.1 "Taxes—Accrued Expense", p.84_