Accruals

Accruals (Definition)

Accruals are revenues earned or expenses incurred that have been recognized on the books, but the related cash has not yet been received or paid. They are used in accrual accounting to ensure that financial statements reflect all the companys expenses and income for the specified time period.

Key points about accruals include:

1. Used to record revenues and expenses in the period they occur
2. Help in matching revenues with expenses
3. Can be either accrued revenues or accrued expenses
4. Recorded as journal entries at the end of an accounting period
5. Reversed in the next accounting period when the actual cash transaction occurs 6. Examples include accrued interest, accrued wages, and accrued taxes Accruals are essential for providing an accurate picture of a companys financial position and performance.