What is accruals management?

‍

Accruals management is the process of identifying all expenses that have been incurred during an accounting period but for which no invoice has yet been received, calculating the appropriate amount to accrue, posting the accrual as a journal entry, and tracking the accrual until the actual invoice arrives and the accrual is reversed.

‍

Why accruals management matters

‍

Without accruals, expenses are only recognised when invoices arrive — which may be weeks or months after the underlying expense was incurred. A business that provides services in December but does not accrue the associated costs will overstate December profit and understate January profit when invoices arrive.

‍

For large enterprises, accruals can represent significant balance sheet balances — accrued payroll, accrued bonuses, accrued utilities, accrued professional fees.

‍

The accruals management process

‍

Identify accruals needed. Before close, finance teams review expenses expected in the period to identify what needs to be accrued.

‍

Calculate accrual amounts. Each accrual is estimated using contract rates, headcount data, consumption figures, or other available information.

‍

Post accrual journal entries. Accruals are posted to the appropriate expense and accrued liability accounts.

‍

Maintain the accruals schedule. A schedule tracking all open accruals — amount, period, expected invoice date — is maintained and reconciled to the GL accrued liabilities account.

‍

Reverse and replace. When the actual invoice arrives, the accrual is reversed and the invoice is posted. The net effect is zero if the accrual was accurate.

‍

Related: Journal entry · Accrual accounting · Month-end close · Balance sheet reconciliation