Accruals
What are Accruals?
Accrual accounts contain income and expenses that are yet to be invoiced by period-end.
![acr1](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr1.jpg)
How it Works
A business will make many transactions during an accounting period.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr2-4.jpg)
These transactions include sales.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr3-1.jpg)
They also include expenses.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr4.jpg)
At period-end, you summarize these particular transactions in an income statement.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr5.jpg)
For that report to be accurate, it needs to contain an accurate record of all income and expenses for the period.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr6.jpg)
Often, though, the accounts don’t accurately reflect the true situation.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr7.jpg)
For example, the business may have incurred telephone expense during the period.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr8.jpg)
But it was yet to be invoiced for this expense as at period-end.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr9.jpg)
This means the period-end report will be missing an expense it really should show.
![acr10](https://seeaccountingnow.online/wp-content/uploads/2021/06/acr10.jpg)
Similarly, the business may have done work for clients during the period.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr11.jpg)
The period-end report should show the income received from this work.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr12.jpg)
But as at period–end, the business may not yet have invoiced their clients for some of the work done.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr13.jpg)
For the period-end report to be correct, you need to record unreported income and unreported expenses.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr14.jpg)
To do this, you need to adjust your accounts.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr15.jpg)
Income accrual accounts will show income that has accumulated over time and is yet to be received.
![acr16](https://seeaccountingnow.online/wp-content/uploads/2021/06/acr16.jpg)
Expense accrual accounts will show expenses that have accumulated over time but that are yet to be paid.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/acr17.jpg)
To see how to record accruals, see accrued expenses and accrued income
© R.J. Hickman 2020