What are accruals?

Accruals refer to the accounting principle where income and expenses are recorded in the periods in which they are earned or incurred, rather than when payment is made or received. This ensures that income and expenses are attributed to the correct accounting period, providing a more accurate picture of the financial result for that period.

Accruals make it possible to divide income or expenses that span a longer timeframe into multiple parts, which can then be allocated across several months, quarters, or years.

This means that income should be recognized as revenue in the period it is actually earned, even if the payment is received in a different period. Likewise, expenses should be recognized as costs in the period they are incurred, even if the payment occurs later.

In summary, revenue is accrued income, and cost is an accrued expense.

Do you want to start using accruals? Activate this functionality.