What is an accrual?
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.
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.
VAT – 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.