What is an accrual

What is an accrual
Accruals

Accrual – What is an accrual?

An accrual is where you make provision for the cost of goods or services received by the end of the period but which have not been invoiced.

Accrual Example 1

Suppose you have paid an electricity bill of £500 on the 1st of January 2015, and this covers use from the first of October 2014 to the 31st of December 2014.

If you were preparing accounts on the 31st of December 2014, you would have received the benefit of the electricity for October to December, but would not have paid for it. To reflect the fact that you have used the electricity you would need to accrued £500.

Accrual Example 2

Suppose you have paid an electricity bill of £1,000 on the 1st of April 2015, and this covers six months use from the 1st of October 2014 to the 31st of March 2015.

If you were preparing accounts on the 31st of December 2014, you would have received the benefit of three months of electricity for October to December, but would not have paid for it. To reflect the fact that you have used the electricity you would need to accrued 3 / 6 x £1,000 = £500.

Accrual Example 3

Suppose you have paid an electricity bill of £1,000 on the 1st of April 2015, and this covers nine months use from the 1st of July 2014 to the 31st of March 2015.

If you were preparing accounts on the 31st of December 2014, you would have received the benefit of six months of electricity for July to December, but would not have paid for it. To reflect the fact that you have used the electricity you would need to accrued 6 / 9 x £1,000 = £667.

Accrual Example 4

Suppose you have paid an electricity bill of £1,000 on the 1st of April 2015, and this covers twelve months use from the 1st of April 2014 to the 31st of March 2015.

If you were preparing accounts on the 31st of December 2014, you would have received the benefit of nine months of electricity for April to December, but would not have paid for it. To reflect the fact that you have used the electricity you would need to accrued 9 / 12 x £1,000 = £750.

What are accruals and prepayments?

Now you’ve read about accruals, find out about prepayments.


The aim of these pages is to help you understand your accounts by explaining some of the commonly used accountancy terms.  If you are looking for accountants in Sutton Coldfield, Walsall, Birmingham, or the rest of the West Midlands to help with your accounts and tax returns please contact me to see how I can help.