Accrual
Also called: Accrued expense
What is an accrual?
An accrual, or accrued expense, is a cost used this year that has not been paid or billed by the year end.
It is added to this year's costs with a year-end journal: debit the expense account, credit Accrued expenses.
Accrued expenses is a liability. It is shown under current liabilities in the statement of financial position.
Example
An electricity bill for £900.00 covers 3 months and arrives after the year end. 2 of those months fall in this year. The accrual is £600.00.
Why it matters
Costs belong to the year they are used, not the year they are paid. Without the accrual, this year's costs are too low and profit is too high.
Practise it
Module, 5 rooms, all freeAccruals and prepayments
Practise it nowThe accruals idea: match costs to the year
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].