What is an accrual?

Accruals (definition)

Accruals are amounts of money that have been earned or spent, but not yet paid.

Businesses use accruals to keep tabs on what’s owed. It may be money that’s going to come in, such as payment from a customer. Or an amount that’s going to go out, such as money owed to a supplier, employee, or the tax office.

What is an accrual? Accrual equals IOU.

Accruals are amounts of money that you know will come or go from the business.

Accruals are amounts of money that you know will come or go from the business.

Accruals are recorded on the balance sheet as an asset (if it’s owed to you) or a liability (if you owe it to someone else).

Common examples of accruals:

  • Unpaid invoices – where a sale has taken place but the cash is yet to change hands.
  • GST – where tax has been collected but not yet submitted to the government.
  • Salary and wages – where pay has been earned but payday hasn’t come around yet.

Some businesses must account for accrued income and expenses when submitting their end-of-year tax returns.

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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.