An accrual is an amount outstanding for payment by the end of an accounting
period, so has not been entered into the ledger accounts.

In accounting for accruals, the effect that needs to occur will be to increase the
relevant expenditure in an attempt to account for the outstanding transactions
which may not have been paid for and then to increase the liability in that
accounting period, recognising that the business owes that amount.

 

 

Example:

You are working on the accounting records of a business for the year ended 31
January 20X7. You are looking at the business rates expense for the year and
this shows payments for the following periods: 

February 20X6 – September 20X6- Office 1	£980
February 20X6 – December 20X6- Office 2	£1,054

 Calculate the value of the adjustment required for the business rates account as at 31 January 20X7 and show the journal entry needed for the relevant adjustment.

Solution:

		Accruals
February 20X6 – September 20X6- Office 1	£980	£980/8×4= £490
February 20X6 – December 20X6- Office 2	£1,054	£1054/11×1=95
Total accruals adjustment needed		£490+£95=£585

                      

Account name	Amount (£)	Dr/ Cr
Business rates	585	Dr
Accruals	585	Cr