Many people confuse deductibles and copays (copayments). While both terms refer to out-of-pocket expenses, deductibles and copays are very different things. A copay is the flat fee you pay for certain medical expensesâfor example, $25 per office visit or $10 for a prescription drug. The health insurance company reimburses the doctor and the pharmacy for the difference between the copay and the cost of treatment. In general, if you pay a copay for a service or prescription drug, you do not also pay toward your deductible.
If the company does not make such an adjusting entry, expenses (in the income statement) as well as current liabilities (in the balance sheet) will be understated, while equity will be overstated, as the result. Examples of accrued liabilities are wages, taxes, rent, and interest.
Accrual Method. According to IRS instructions for Schedule C, if you use the accrual method, you must report income when it is earned and deduct expenses when they are incurred, even if they are not paid during the tax year.