Accountancy/Accruals

An accrual is the effect of receiving goods or services before cash payment. This will most often result in a liability on the company's books, usually as a payable. Another type of accrual results from recognizing revenues before payment. Note this does not include unearned revenue, which is a deferral. Sometimes a business uses a service (e.g. electricity) which it has not yet been invoiced for. The double entry for this is: 2005Feb 28 Electricity (Expense) Unpaid electricity (Liability) 130 Later when this bill gets paid 2005Mar 12 Unpaid electricity (Liability) Cash (Asset) 130 It is possible for an accrual to be made for telephone call charges in the period while the line rental (paid in advance) is a prepayment.