Accounting technology / Glossary / Accruals

What are accruals in accounting?

Definition

Accruals are amounts recorded in the accounts for expenses a company has incurred, or income it has earned, before an invoice is received or issued. They put costs and revenue in the period they relate to, as the accrual basis of accounting requires: for example, electricity used in March but billed in April is accrued in March.

Also calledaccrued expensesaccrued liabilitiesaccrued income

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Records: Costs or income not yet invoiced
Usually: Reversed next period
Category: ERP and general ledger

How accruals work

At period-end the finance team lists costs incurred but not yet billed: goods received without an invoice, services used, staff bonuses earned, interest owed, utilities. Each is estimated from purchase orders, contracts, usage or past invoices and booked as an expense with a matching accrued liability. Accrued income works the same way for revenue earned but not invoiced. Most accruals reverse on the first day of the next period, so that when the real invoice arrives and is posted, the cost is not counted twice. Accruals are a common source of close delays and audit adjustments, because they depend on budget holders reporting what they have committed. Close tools such as FloQast and Numeric track accrual schedules, and some AI ledgers propose accruals from purchase orders and bills received after period-end.

Common questions

What is the difference between an accrual and a provision?+

An accrual is a liability for something already received whose amount is known or closely estimated, such as an unbilled service. A provision is a liability of uncertain timing or amount, such as a lawsuit or a restructuring cost.

What is the difference between accruals and prepayments?+

They are opposites. An accrual records a cost incurred before it is invoiced or paid; a prepayment records a payment made before the cost is incurred, held as an asset and released over time.

Do small businesses need to post accruals?+

Businesses that prepare accounts on the accrual basis do, which includes most companies. Very small businesses using cash basis accounting, where tax rules allow it, record income and costs when cash moves instead.