Accruals
Learn what accruals are, how they work, and how they differ from cash accounting, with clear examples.
Published Friday 24 July 2026
Table of contents
Accruals are amounts of money that you know will come or go from the business.
Key takeaways
- Accruals are amounts of money that have been earned or spent, but not yet paid.
- Accruals record income when you earn it and expenses when you incur them, no matter when the cash actually moves.
- Accrued income is money owed to you, while an accrued expense is money you owe to someone else.
- On your balance sheet, accruals show up as an asset when money is owed to you and a liability when you owe it.
What are accruals?
Accruals are amounts of money that have been earned or spent, but not yet paid. They let your accounts reflect what has actually happened in your business, rather than only what has hit your bank account.
This matters because it gives you a truer picture of how your business is doing. You can see the income you've earned and the costs you've run up in a period, even if the money hasn't changed hands yet.
How do accruals work?
Accruals work by recording income when you earn it and expenses when you incur them, regardless of when cash moves in or out. So if you complete work in June but get paid in July, you record the income in June.
The same idea applies to costs. If you use electricity in one month but pay the bill the next, you record the expense in the month you used it. You capture these adjustments in your books through a journal entry, which keeps your income and costs sitting in the right period.
Accruals vs cash accounting
The difference between the two methods comes down to timing. Accrual accounting records income and expenses when they're earned or incurred, while cash accounting records them only when money actually enters or leaves your account.
Accrual accounting tends to give a more complete view of profitability, which suits growing businesses. Cash accounting is simpler and shows exactly what's in the bank. You can weigh up both in this guide to cash vs accrual accounting.
Types of accruals: accrued expenses and accrued income
Accruals fall into two groups, depending on whether money flows towards you or away from you. Getting the difference clear helps you record each one correctly.
An accrued expense is money you owe but haven't paid yet, such as wages, utilities, or taxes for a period that's already passed. Accrued income, sometimes called accrued revenue, is money owed to you for work you've done but haven't been paid for, such as an unpaid invoice from a customer.
Examples of accruals
Accruals turn up across everyday business activity, whenever value changes hands before the payment does. Here are some common examples you might see in your own accounts.
- Unpaid invoices for work you've completed but not yet been paid for
- VAT you've collected on sales but not yet paid over to Revenue
- Salary and wages your staff have earned but not yet received
- Utility costs like electricity you've used before the bill arrives
Are accruals an asset or a liability?
Accruals can sit on either side of your balance sheet, and which side depends on the direction of the money. The recording is straightforward once you know who owes whom.
Accrued income is recorded as an asset, because it's money owed to you. An accrued expense is recorded as a liability, because it's money you owe to someone else. You can see how these entries fit the wider picture in this guide to the balance sheet.
Manage your accruals with Xero
Tracking accruals by hand can eat into your time and leave room for error. Accounting software keeps the timing right for you, matching income and costs to the period they belong in without the manual admin.
Xero records your transactions as they happen and updates your reports in real time, so your accrued income and expenses stay accurate. You can see how the day-to-day side works in this guide to recording accounting transactions. To keep your accruals organised from the start, try Xero and get one month free.
FAQs on accruals
Here are answers to frequently asked questions about accruals.
What is the difference between an accrual and an accrued expense?
An accrual is the broad term for any income or cost recorded before the cash moves. An accrued expense is one specific type of accrual, covering only the money you owe.
Are accruals the same as accounts payable?
They overlap but aren't identical. Accounts payable covers bills you've received and agreed to pay, while accruals can also include costs you've incurred before any invoice arrives.
Do small businesses in Ireland have to use accruals?
Many Irish small businesses prepare accounts on an accruals basis, and it's often expected for financial reporting. Check your own obligations with an accountant, as the right approach depends on your size and structure.
What is the accruals concept in accounting?
The accruals concept is the principle that you record income and expenses in the period they relate to, not when cash changes hands. It underpins how accrual accounting presents your profit and position.
Related terms
Learn more about accruals
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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.