An accrual is an accounting adjustment made for costs that you have incurred but have not received a bill for. Here are some common examples of accruals that you may come across.
Accrual Example 1
It is the 31 December 2017 and the end of the financial year for XYZ Limited. A commission payment of £5,000 is due to an employee of the business for December 2017 which will be paid as part of January 2018 payroll. XYZ Limited must accrue an amount of £5,000 in respect of commissions payable in the accounts to 31 December 2017.
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 and that an invoice is due from them therefore it is prudent to accrue for the rent for March of £7,500.
Accrual Example 3
It is the 30 April and you are preparing the management accounts for a small business. You know that a freelance consultant worked for the business during the month of April but has not submitted their invoice. You should make a reasonable estimate of the accrual and include a provision for the cost of the consultant.
Accrual Example 4
You are in the process of finalising your year end accounts and your accountant will bill for this once the accounts are processed and corporation tax return submitted. In the year end accounts your accountant will accrue an amount for their fees in order to reflect the cost in the correct financial year.
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