Accruals – What are accruals?
An accrual is an expense or revenue incurred in a period for which no invoice or payment changed hands by the end of that period
At the end of an accounting period? Make sure your accounts are in order and generate reports with an efficient accounting system such as Debitoor.
Accruals are amounts unaccounted for yet still owing at the end of the accounting period or year. If the amount is unknown, estimates must be made and added to expenses in order to generate an accurate picture of the company in the Profit and Loss statement.
Accruals allow a business to keep thorough records of sales and expenses, even if payment has not yet been made or received for goods or services rendered.
Why use accruals?
The use of accruals allows a business to look beyond simple cash flow. In a cash-based accounting approach, a company records only the transactions where cash changes hands. Accruals form the base for accrual accounting and incorporate all transactions, including accounts receivable, accounts payable, employee salaries, etc. Recording an amount as an accrual provides a company with a more comprehensive look at its financial situation. It provides an overview of cash owed and credit given, and allows a business to view upcoming income and expenses in the following fiscal period.
Accruals are used for:
- benefits that have already been taken by the company but for which payment has not yet been made, or
- services that have already have been provided but for which payment has not yet been received
Types of accruals:
There are a few types of accruals, but most fall under one of the two main types: revenue accruals and expense accruals.
- Expense: when services or goods have been received by a company, but for which payment has not yet been made. For example, an account receivable. In other words, a company receives a mobile phone bill in January for a past period (December of the previous year), this would be recorded as an expense accrual.
- Revenue: when services or goods have been provided by the company, but payment has not yet been received. An example is rent for an office space that has not yet been paid in full but is expected to be paid in the next fiscal period.
Accruals and Debitoor
Debitoor allows you to record each transaction and register payment when sent or received. Your dashboard gives you a unique overview of revenues and expenses for your business each time you login.