You are here

Accruals

5 August, 2015 - 16:29

An accrual is the effect of receiving goods or services before cash payment. This will most often result in a liability on the company's books, usually as a payable. Another type of accrual results from recognizing revenues before payment. Note this does not include unearned revenue, which is a deferral.

Sometimes a business uses a service (e.g. electricity) which it has not yet been invoiced for. The double entry for this is:

Journal - Page 1

Date

Description

Post Ref.

Dr

Cr

2005 Feb

28

Electricity (Expense)

 

130

 
   

Unpaid electricity (Liability)

   

130

 

Later when this bill gets paid

Journal - Page 1

Date

Description

Post Ref.

Dr

Cr

2005 Mar

12

Unpaid electricity (Liability)

 

130

 
   

Cash (Asset)

   

130

 

It is possible for an accrual to be made for telephone call charges in the period while the line rental (paid in advance) is a prepayment.