Course Outline
Join PRO

What are accruals?

Harold Averkamp, CPA, MBA

Definition of Accruals

The accounting and bookkeeping term accruals refers to adjustments that must be made before a company’s financial statements are issued. Accruals involve the following types of business transactions:

  • expenses, losses, and liabilities that have been incurred but are not yet recorded in the accounts, and
  • revenues and assets that have been earned but are not yet recorded in the accounts

Example of an Accrual of an Expense

One example of an accrual of an expense and liability is a major repair that occurs in the final month of the accounting year, but is not paid until the bill is received in the first month of the following year. For the current year’s financial statements to be complete (under the accrual method of accounting) the following is necessary:

  • the income statement for the current year must report the repair expense, and
  • the balance sheet as of the last day of the year must report the related liability

To record this accrual, an adjusting entry is made that debits Repairs Expense and credits Accrued Expenses Payable.

Example of an Accrual of Revenues

One example of an accrual of revenues occurs at your electric utility company. For instance, during December the utility likely uses natural gas and/or coal plus many employees to generate the electricity used by its customers in December. However, the utility does not bill its customers for that electricity until after it reads the meters in January. As a result, the utility’s financial statements will need an accrual adjustment so that:

  • its income statement for the month of December and for the current year will report all of the revenues earned by the utility, and
  • its December 31 balance sheet will report a current asset for the amount it has a right to receive from its customers (including the amount for the electricity it provided in December)

The accrual adjustment will debit the current asset account Accrued Receivables and will credit the income statement account Accrued Electricity Revenues.

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews



PRO Plus

Lifetime Access (One-Time Fee)
Word Scrambles
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

Learn More About Harold

Certificates of

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus