Accrual

What is an accrual?

An accrual is an accounting entry that recognizes revenue or expenses before the money actually changes hands. If you complete a $5,000 project in December but won't be paid until January, accrual accounting records that $5,000 as December income. The work happened in December, so that's when it counts.

Accruals give a more accurate picture of business activity by matching income and expenses to when they actually occur.

Common types of accruals

Businesses typically track:

• Accrued revenue — Work completed but not yet invoiced or paid
• Accrued expenses — Costs incurred but not yet paid (like utilities used but not yet billed)
• Accrued wages — Employee time worked but not yet paid
• Accrued interest — Interest owed but not yet due

Accruals vs. cash basis

With cash basis accounting, you record transactions when money moves. With accrual accounting, you record when the economic activity occurs. Accruals are part of accrual accounting and provide a more complete view of your financial position, though they add complexity to bookkeeping.