Accruals defined, include examples

Accrued expenses are expenses that have occurred but are not yet recorded through the normal processing of transactions to the general ledger. Since these expenses are not however in the accountant’s general ledger, they will not appear on the financial statements unless an adjusting entry is entered prior to the preparation of the financial statements.

Timing on when the accrual entry is made is at the discretion of the organization. Once the date is established, it’s essential to consistently create the accrual entry on the same date each month. The process of reversing or paying out of the accrual account depends on the organization — benefits of the accrual method 1. The expense is accounted for in the correct month 2. It helps minimize playing catch up when paying the organizations bills. If for some reason the Parts manager is holding an invoice, the expense is still recorded on the books, when he submits the bill the next step is to post to the established accrual account and pay it.