Accruals

Revision Cards for computerising accounts

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Accruals

occur when a cost has been incurred (accrued) but not yet charged to the company. Even though an invoice has not yet been received, the charge should still appear in the accounts at the month end to show a true picture of the business.

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Example

For example: If we received our last quarterly bill for electricity on 30th April, we will have still used electricity in May and June, even though we have not yet had the bill. We therefore make an estimate of the amount and accrue this to the accounts.

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Dealing with accruals

Dealing with accruals therefore involves two stages.

1. Reversing any opening accruals at the beginning of the month.

2. Providing a closing accrual at the end of the month.

Because Accruals are monies owed they will be CREDIT on the balance sheet (N/C 2109).

So, to reverse the entry we will: DEBIT accruals

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CREDIT (in this case) Electricity

At the end of the month we will:

CREDIT accruals and DEBIT Electricity

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