Accruals
Accruals record income and expenses when they’re earned or incurred, not when cash moves.
Published Tuesday 27 October 2026
Table of contents
Accruals are amounts of money that you know will come or go from the business.
Key takeaways
- Accruals record income and expenses when they’re earned or incurred, rather than when cash changes hands, giving you a more accurate picture of your finances
- The two main types are accrued expenses (costs you owe but haven’t paid) and accrued revenue (money you’ve earned but haven’t received)
- Indonesia’s accounting standard for micro, small and medium entities (SAK EMKM) uses the accrual basis, though eligible individuals can keep simpler tax records
- Recording accruals involves simple journal entries that adjust your accounts at the end of each reporting period
What are accruals?
Accruals are adjustments that recognise income or expenses when they occur, rather than when money enters or leaves your bank account. They’re one of the building blocks of accurate financial reporting for your business.
Accruals are a core part of accrual accounting. They capture the gap between when a transaction happens and when the cash moves.
For example, if you do consulting work in March but get paid in April, an accrual records the revenue in March, when you earned it. This gives you a clearer, more realistic view of how your business is performing at any given time.
How do accruals work?
Accruals bridge the timing gap between business activity and cash flow, so your financial reports reflect what’s actually happening.
Here’s a simple way to think about it. Your business receives an electricity bill on 31 March for Rp2.500.000, but payment isn’t due until 15 April. Without an accrual, your March financial statements wouldn’t show that Rp2.500.000 expense, even though you used the electricity in March.
By recording an accrual, you add the Rp2.500.000 expense to your March accounts. When you pay the bill in April, you reverse the accrual and record the payment. This means each month’s financials accurately reflect the costs and revenue that belong to that period.
You typically record accruals in your general ledger at the end of each accounting period (monthly, quarterly or annually), then reverse them when the transaction settles.
Types of accruals
Accruals fall into two main categories, depending on whether you owe money or are owed money.
Accrued expenses
Accrued expenses are costs your business has incurred but hasn’t paid yet.
Accrued expenses show up as liabilities on your balance sheet because they’re money you owe. Common examples include unpaid employee wages, utility bills not yet due, and loan interest that’s building up but isn’t payable until next month.
Accrued revenue
Accrued revenue is income your business has earned but hasn’t received payment for yet.
Accrued revenue appears as an asset on your balance sheet because it’s money owed to you. For instance, if you complete a Rp15.000.000 landscaping job in March but don’t invoice the client until April, the revenue belongs in March. Recording it as accrued revenue keeps your March financials accurate.
How to record accruals
You record accruals with journal entries that adjust your accounts at the end of a reporting period. Each entry follows double-entry bookkeeping, so every debit has a matching credit.
To record an accrued expense, follow these steps:
- Debit the relevant expense account (for example, utilities expense) to recognise the cost.
- Credit the accrued liabilities account to show that you owe the amount.
- When you pay the bill, reverse the entry: debit the accrued liabilities account and credit your bank account.
To record accrued revenue, follow these steps:
- Debit the accrued revenue (or accounts receivable) account to recognise the income.
- Credit the relevant revenue account to reflect the earnings.
- When you receive payment, reverse the entry: debit your bank account and credit the accrued revenue account.
Accounting software like Xero helps you record transactions and automates data entry through bank feeds and document uploads, so your records stay up to date.
Accrual accounting vs cash accounting
Accrual accounting records income and expenses when they’re earned or incurred, while cash accounting records them when money moves. Here’s how they compare.
Accrual accounting:
- Records income and expenses when they’re earned or incurred, regardless of when cash moves
- Gives a more accurate picture of your financial position at any point in time
- Required in many cases by financial reporting standards or tax rules, depending on the country
- Better suited to businesses that invoice clients or carry inventory
Cash accounting:
- Records income and expenses only when cash is received or paid
- Simpler to manage, especially for very small businesses with straightforward transactions
- Often allowed for smaller or unincorporated businesses, though the rules vary by country
- Can give a misleading picture if you have outstanding invoices or unpaid bills
For most growing small businesses, accrual accounting gives better visibility into your true financial health, even though it takes a bit more effort to maintain. You can see the two methods side by side in cash vs accrual accounting.
Examples of accruals
Seeing accruals in everyday business scenarios makes the concept easier to grasp. Here are some common situations small businesses encounter.
- Utility bills: your business uses electricity throughout March, but the bill arrives in April. You record the expense in March as an accrual so your March profit and loss report is accurate.
- Employee wages: your team works the last week of the month, but payday falls in the following month. Accruing those wages puts your labour costs in the correct period.
- Revenue earned but not yet invoiced: you finish a project for a client in March but don’t send the invoice until April. An accrual captures that revenue in March, when the work was done.
- Value-added tax (Pajak Pertambahan Nilai, PPN) collected but not yet paid: you collect PPN from customers during the period and pay it later to the Directorate General of Taxes (DJP). Recording the PPN you owe as an accrual keeps your reporting aligned.
- Interest on a business loan: interest builds up daily on your loan, but you only make payments monthly. Accruing the interest keeps each month’s expenses complete.
Benefits of accrual accounting for small businesses
Accrual accounting takes a little more effort than cash accounting, but the payoff is worth it for most small businesses.
- Accurate financial picture: your profit and loss statement reflects what’s actually happening in your business, not just what’s in your bank account today.
- Better decision-making: with a complete view of income and expenses, you can make more confident choices about hiring, investing and managing cash flow.
- Compliance readiness: if your business grows, incorporates or seeks investment, you may need accrual-based records. Having them in place already makes that step easier.
- Lender and investor confidence: lenders and investors may ask for accrual-based financial statements because they show money owed to and by your business.
- Easier period-to-period comparison: matching revenue and expenses to the correct periods makes it simpler to spot trends and measure performance over time.
When is accrual accounting required?
In Indonesia, financial statements prepared under SAK EMKM use the accrual basis, while tax bookkeeping can use the accrual or cash basis. The basis of accounting you need depends on whether you’re preparing financial statements or tax records.
Financial reporting under SAK EMKM
The Indonesian Institute of Accountants (Ikatan Akuntan Indonesia, IAI) built SAK EMKM on basic assumptions that include the accrual basis (dasar akrual) and going concern. Financial statements under SAK EMKM, and under the other SAK frameworks, must be prepared on the accrual basis.
If you prepare financial statements for a lender or investor, keeping accrual-based records from the start makes that work much simpler.
Tax bookkeeping under Indonesian tax law
Article 28(1) of the Law on General Provisions and Tax Procedures (UU KUP) requires companies, business owners and independent workers to keep books (pembukuan). Under Article 28(5), you can use the accrual or cash basis (stelsel akrual atau stelsel kas), as long as you apply it consistently.
If you also prepare SAK EMKM financial statements, using the accrual basis for your tax books keeps both sets of records aligned.
Simpler record-keeping for eligible individuals
Article 28(2) lets individuals who can use the deemed-profit norm (Norma Penghitungan Penghasilan Neto, NPPN) keep simpler records (pencatatan) instead of full books. To qualify, you need gross turnover under Rp4.800.000.000 a year and must notify DJP within the first three months of the tax year.
How long to keep your records
You need to keep your books, records and supporting documents for 10 years in Indonesia.
Even if your business can use the cash basis for tax, adopting accrual accounting early can save you time in the long run. As your business grows, switching from cash to accrual accounting becomes more complex. Starting with accrual-based records gives you a smoother path to compliance and better financial visibility from the outset.
Rules change, so check with a local accountant or tax advisor about what applies to your business.
Keep your accruals on track with Xero
Xero helps you manage accruals without the extra admin. With Xero’s accounting software, you can bring in transactions automatically with bank feeds, reconcile them and pull up easy-to-read financial reports whenever you need them.
Whether you’re tracking accrued expenses or preparing your tax returns, Xero keeps everything in one place. You spend less time on the books and more time running your business. Get one month free and see how Xero fits your business.
FAQs on accruals
Here are some frequently asked questions about accruals.
What is the difference between accruals and prepayments?
Accruals recognise expenses or revenue that have occurred but haven’t been paid or received yet. Prepayments are the opposite: they record payments you’ve made in advance, such as paying rent for the next quarter.
Do all businesses need to use accrual accounting?
Not necessarily: SAK EMKM financial statements use the accrual basis, but your tax books can use the accrual or cash basis. Individuals eligible for NPPN can keep simpler records (pencatatan) instead of full books.
How do accruals affect financial statements?
Accrued expenses increase your liabilities and reduce your profit for the period, while accrued revenue increases your assets and boosts reported income. Both adjustments make your financial statements match the period in which the activity occurred.
What is the difference between accruals and accounts payable?
Accounts payable are amounts you owe for goods or services where you’ve already received an invoice. Accruals cover expenses you’ve incurred but haven’t been billed for yet, such as wages earned by employees before payday.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.