Here are the bookkeeping entries you need to make in order to correctly include an accrual and then reverse it, using two examples of an accrual.
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 double 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
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 double 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.
If you are registered for VAT, your accruals should be made net of VAT.
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