Definition
Accruals are accounting entries that are used to record revenues and expenses that have been earned or incurred, but not yet received or paid. Accruals are used to ensure that a company’s financial statements accurately reflect its financial position at any given time.
Importance
Accruals are important because they help to ensure that a company’s financial statements are accurate and up-to-date. Without accruals, a company’s financial statements would not reflect its true financial position, as some revenues and expenses would be omitted. Accruals also help to ensure that a company’s financial statements are in compliance with Generally Accepted Accounting Principles (GAAP).
Example
For example, if a company provides a service in December but does not receive payment until January, the company would record an accrual in December to record the revenue that was earned in December.
Table
Accrual Type Description
Revenue Revenue that has been earned but not yet received
Expense Expense that has been incurred but not yet paid
Key Takeaways
- Accruals are accounting entries used to record revenues and expenses that have been earned or incurred, but not yet received or paid.
- Accruals are important because they help to ensure that a company’s financial statements are accurate and up-to-date.
- Accruals also help to ensure that a company’s financial statements are in compliance with Generally Accepted Accounting Principles (GAAP).
- Accruals can be either revenue or expense accruals.
Conclusion
Accruals are an important part of accounting and are used to ensure that a company’s financial statements accurately reflect its financial position at any given time. Accruals are used to record revenues and expenses that have been earned or incurred, but not yet received or paid. Accruals are also important for ensuring that a company’s financial statements are in compliance with Generally Accepted Accounting Principles (GAAP).
