What Is an Accrual and How Do I Use Double-Entry Bookkeeping to Enter It in My Accounts?

An accrual is an accounting method of
allowing the cost of a product or service to be included in the
period of accounts that you are reporting on even if you have not
received an invoice for that product or service. This not only helps
in reducing your profit and, therefore, your tax liability for the
current accounting period but also your accounts must be prepared to
give a true and accurate reflection of the businesses performance for
the period of time that they cover and posting an accrual is
important to ensure this is the case.

I have known many accountants who do
not use them and doing so certainly saves the accountant from
devoting the time to calculate these but as I am going to demonstrate
they are easy to calculate and record for double entry bookkeeping
purposes and as such if your accounts don’t have any posted and you
think they are needed I would certainly ask the accountant why they
have not done this for you, please remember you sign the accounts as
a true reflection of the business transactions and inaccuracies can
cause you problems if they are found to be incorrect notwithstanding
the fact that the accounts are also used for your tax return and you
may be committing an offence if the tax return is incorrect.

As mentioned earlier an accrual is to
report the expenses that have been incurred but you have not yet
received an invoice so for example if you are having your accounts
prepared then the accountancy fee would almost certainly be an
accrual. The accounts are for the period of accounts and your
accountant probably hasn’t raised you an invoice as they have not
carried out the work. To post an accrual you would post a debit to
the expense account, so for our example the debit would be to the
expense account of accountancy fees which would show as an expense on
the profit and loss account which increases the expenses and lowers
the business profit and a credit to the creditors accrual account on
the balance sheet, when you then receive the invoice and pay the bill
then the transaction would be a credit to the method of payment,
let’s assume that was the business bank account and debit the
creditors accrual account, thus not showing on the profit and loss
account again, it simply would remove the liability from the balance

Using double entry bookkeeping skills
as you can see it is a very straightforward transaction and ensures
the timing of the expense is correct.

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