Bookkeeping Entries for an Accrual and Examples

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The bookkeeping entries for an accrual can be a tricky one to master.

Here is a little more about accruals as well as some example of the journal entry to help you understand how it all works

What is an Accrual

An accrual is an accounting adjustment made for costs that a business has incurred but has not received a bill for.

Typical costs that need to be accrued include:

  • Freelancer costs;
  • Year-end accounting fees;
  • Phone bill
  • Gas bill

Read More: What is an Accrual

Bookkeeping Entries for an Accrual Example 1

It is the 31 December 2017 and the end of the financial year for XYZ Limited. 

A consultant has worked for the Company but not yet invoiced for their time. 

The time spent amounts to £5,000 and will be invoiced in January 2018. 

XYZ Limited must accrue an amount of £5,000 in respect of the consultant in the accounts to 31 December 2017.

The bookkeeping entry for the accrual dated 31 December 2017 would be:

Dr Consultants (P&L) £5,000
Cr Accruals (Balance Sheet) £5,000

Once the consultant sends their invoice in January, the accrual should be reversed that way the cost is only included once in the profit and loss account.

The bookkeeping entry would be:

Dr Accruals (Balance Sheet) £5,000
Cr Consultants (P&L) £5,000

Bookkeeping Entries for an Accrual Example 2

It is 31 March and an invoice for £7,500 for March rent has still yet to be received from the businesses landlord. 

We know that this is an oversight on the landlords part therefore it is prudent to accrue for the rent for March of £7,500.

The bookkeeping entry for the accrual would be:

Dr Rent (P&L) £7,500
Cr Accruals (Balance Sheet) £7,500

Upon receipt of the invoice from the landlord, the accrual can then be reversed.

This would be the bookkeeping entry:

Dr Accruals (Balance Sheet) £7,500
Cr Rent (P&L) £7,500

Should You Include VAT in Your Bookkeeping Entry for an Accrual?

If you are registered for VAT, your accruals should not include VAT.

This is because VAT is not actually a cost of a VAT registered business.

Updated 16 April 2019

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About Anita

Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy. She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.