Accrual is the record of future expenses or revenues for later use, even when both parties haven’t exchanged the money yet. These impact a company’s net income on the income statement. Accruals also affect the balance sheet as they involve cash assets and liabilities.
These must be filed before the financial statement is issued. Accrual accounting includes accrued interest, accounts receivable, and accounts payable. This type of accounting is beneficial for predicting and recording what you will spend or incur later.
Accruals enhance the quality of information of a company’s financial statement, as they provide an insight into the upcoming credits and liabilities. These are created by making adjustments in the general ledger at the end of every accounting period.
There are two types of accruals:
Revenue accrual
This includes the future transactions in the current income statement.
Expense accrual
This states the future expenses in the current income statement.
