Financial Glossary
Accrual Entries
Accrual entries are journal entries that recognize revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid. They create or adjust balance sheet accounts such as accrued expenses payable or accrued revenue receivable, and they are the mechanism that makes accrual-basis accounting work under GAAP. Common examples include accruing wages earned but not yet paid, interest incurred but not yet due, and revenue delivered but not yet invoiced.
Problem & Application
For any business that wants financial statements to reflect reality rather than the timing of bank transactions, accrual entries are what align costs with the revenue they generated, which is essential for seasonal operators whose cash and earnings diverge sharply across the year. Without them, a campground that prepays insurance or a startup that owes a quarter of payroll at month-end will show misleadingly rosy or distressed results. Lenders, investors, and acquirers expect accrual-basis books, so consistent, well-documented accruals are part of being financeable.
In Short
Accrual entries ensure that revenue and expenses land in the period they actually belong to, producing financial statements that tell the truth about performance. They require disciplined month-end recordkeeping to do that job reliably.