Period-end recognition of revenue earned or expense incurred before the related cash movement or final invoice.
An accrual is the recognition of revenue or expense before the related cash is received or paid, and often before the final invoice is issued. In practice, the word can refer to the amount recognized, the balance created, or the period-end entry used to record it.
Accruals keep financial statements tied to the correct period instead of the timing of cash movement. Without them, expenses can be understated, revenue can be delayed, and period profit can look stronger or weaker than the underlying business activity.
An accrual usually appears through an adjusting entry. Common examples include wages earned but unpaid, utilities used before billing, and revenue earned before invoicing. Some accruals are reversed in the next period to simplify processing once the actual invoice or cash entry arrives.
An accrual is one working part of accrual basis accounting. The broader method governs recognition across the system. The accrual is one specific timing adjustment inside that method.
At month-end, a business estimates 1,800 of utility cost that has been used but not yet billed:
| Account | Debit | Credit |
|---|---|---|
| Utilities Expense | 1,800 | |
| Accrued Expense or Utilities Payable | 1,800 |
That entry records the cost in the month that used the service rather than waiting for the next month’s invoice.
An accrual is not the same as accounts payable. Accounts payable usually begins with an invoice. An accrual often exists before that invoice arrives. It is also different from a prepaid balance, where cash moves first and the expense comes later.