accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

and

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, an accrual is an

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

or liability that represents revenue or expenses that are receivable or payable but which have not yet been paid. In accrual accounting, the term accrued revenue refers to income that is recognized at the time a company delivers a service or good, even though the company has not yet been paid. Likewise, the term accrued expense refers to liabilities that are recognized when a company receives services or goods, even though the company has not yet paid the provider. Accrued revenue is often recognised as income on an

income statement An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''statement o ...

and represented as an accounts receivable on the

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

. When the company is paid, the income statement remains unchanged, although the accounts receivable is adjusted and the cash account increased on the balance sheet. On the other hand, an accrued expense is recognised as an expense on the income statement and represented as a liability on the balance sheet. Once payment is made, the income statement remains unaffected, while the accounts payable is adjusted and the cash account reduced on the balance sheet. In finance, accrual often refers to the accumulation of interest or investment income over a period of time, though the interest or income has yet to be paid.

Accruals in accounting

Accrual accounting recognizes revenues and expenses when they are earned or incurred, not necessarily when cash is received or paid. For instance, if a company delivers a product in one financial year but will receive payment in the next, the revenue is recognized in the current financial year. Similarly, the company who receives the product also recognizes the expenses incurred in the current financial year, even if the actual payment is made later. This approach contrasts with cash basis accounting, which recognizes transactions only when cash changes hands.

Accrued revenue

Accrued revenue, also known as accrued assets, refers to income earned but not yet received. For example, a company delivering a service or product may record the revenue even if payment will be received later. In rental agreements, where billing cycles don’t align with financial periods, companies must accrue revenue based on the days the service was provided before the billing date.

Accrued expense

An accrued expense is a liability for goods or services received but not yet paid for. These expenses are recorded when incurred, even if the payment will happen later. For instance, a company may receive services in one period but pay for them in the next. The uncertainty surrounding the timing or exact amount of accrued expenses is usually minor compared to provisions, which account for larger uncertainties. IAS 37 explains that accrued expenses differ from provisions because they are more certain in timing and amount. Accrued expenses, like employee vacation pay, are often listed under trade and other payables:

Other uses

payroll A payroll is a list of employment, employees of a company who are entitled to receive compensation as well as other work benefits, as well as the amounts that each should obtain. Along with the amounts that each employee should receive for time ...

, a common benefit that an

employer Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any ot ...

will provide for

employee Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a cor ...

s is a vacation or sick accrual. This means that as time passes, an employee accumulates additional sick leave or

vacation A vacation (American English) or holiday (British English) is either a leave of absence from a regular job or school or an instance of leisure travel away from home. People often take a vacation during specific holiday observances or for sp ...

time and this time is placed into a

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

. Once the time is accumulated, the employer or the employer's payroll provider will track the amount of time used for sick or vacation. When referring to

clinical trial Clinical trials are prospective biomedical or behavioral research studies on human subject research, human participants designed to answer specific questions about biomedical or behavioral interventions, including new treatments (such as novel v ...

s, the definition of "accrual" is either the process of recruiting patients into a trial, or the number of patients in a trial.

References

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