Accruals
Learn what accruals are, the types, and how they show up on your balance sheet, with simple NZ examples.
Published Thursday 23 July 2026
Table of contents
Accruals are amounts of money that you know will come or go from the business.
Key takeaways
- An accrual is money you’ve earned or spent but haven’t yet been paid for or paid out.
- Accrued income is money owed to you, while accrued expenses are amounts you owe.
- On the balance sheet, accruals owed to you are an asset, and amounts you owe are a liability.
- Tracking accruals gives you a clearer view of your cash flow and what you’re owed.
Accruals are a normal part of running a business, especially when money is earned or spent before it actually changes hands.
What is an accrual?
An accrual is money that’s been earned or spent but not yet paid. It records the transaction when it happens, rather than when the cash moves in or out.
Accruals fall into 2 main types, depending on which way the money is flowing.
Types of accruals
Accrued income is money owed to you, like an unpaid invoice for work you’ve already done. Accrued expenses are amounts you owe, such as wages or a supplier bill you haven’t settled yet.
Both sit within accrual accounting, which records income and costs when they’re earned or incurred.
Where an accrual appears on your balance sheet depends on whether the money is coming in or going out.
Are accruals an asset or a liability?
On the balance sheet, an accrual is an asset if it’s money owed to you, and a liability if it’s money you owe. Accrued expenses usually sit under current liabilities, since you’ll pay them soon.
The way you record accruals is what separates the 2 main accounting methods.
Accruals vs cash accounting
Accrual accounting records income and expenses when they’re earned or incurred. Cash accounting records them only when money actually moves in or out of your account.
You can compare the 2 approaches in more detail in this guide to cash vs accrual accounting.
Accruals and prepayments both deal with timing, but they sit on opposite sides of a transaction.
Accruals vs prepayments
An accrual is a benefit you’ve had but haven’t been billed or paid for yet. A prepayment is the opposite: you’ve paid in advance for something you’ll receive later.
Keeping track of accruals helps you see the true state of your finances, not just what’s sitting in the bank today.
Why accruals matter for your business
Accruals give you an accurate picture of what you’ve earned and what you owe across a period. That makes it easier to plan ahead and report with confidence.
Tracking what you’re owed also helps protect your cash flow. According to Xero Small Business Insights, the cost of late payments to Kiwi small businesses rose 81% from an estimated $456 million in 2021 to $827 million in 2023.
Staying on top of recording accounting transactions makes it easier to chase unpaid invoices and keep your reporting accurate.
A few everyday situations create accruals in most small businesses. Here are some common examples:
Examples of accruals
These are typical accruals you might see in your accounts:
- Unpaid invoices for work you’ve already completed
- GST collected but not yet submitted to Inland Revenue
- Salary and wages your team has earned but not yet been paid
Chasing payments and keeping your records accurate takes time you’d probably rather spend on your business.
Track what you’re owed with Xero
Xero brings your invoices, bills and cash flow together, so you can see what you’re owed at a glance and spend less time on manual admin. Get started and get one month free.
FAQs on accruals
Here are answers to some frequently asked questions about accruals.
What is an accrual in simple terms?
It’s money you’ve earned or spent that hasn’t been paid yet. The transaction is recorded now, even though the cash arrives or leaves later.
Is an accrual an asset or a liability?
It can be either. Money owed to you is an asset, while money you owe counts as a liability.
What is the difference between accruals and cash accounting?
Accrual accounting records income and costs when they’re earned or incurred. Cash accounting records them only when the money moves.
What is the difference between an accrual and a prepayment?
An accrual is a benefit you’ve received but haven’t paid for yet. A prepayment is money you’ve paid in advance for something you’ll get later.
Why do businesses use accruals?
They give a more accurate picture of what a business has earned and owes over a period. That helps with planning, reporting and managing cash flow.
Related terms
Learn more about accruals
Handy resources
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Balance sheet template
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Financial reporting
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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.