Accruals refer to expenses or revenues that have been recognized in the accounting records before they have been paid or received, respectively. They are recorded to reflect the economic activity of a business accurately, even if the cash transactions have not yet taken place.
There are two types of accruals:
Accrued expenses (Accrued liabilities): These are expenses that have been incurred but not yet paid for. Examples include accrued wages, accrued interest, or accrued utilities. Accrued expenses are recorded as liabilities on the balance sheet and are typically settled in the future when the payment is made.
Accrued revenues (Accrued assets): These are revenues that have been earned but not yet received in cash. Examples include services performed but not yet invoiced or interest earned but not yet collected. Accrued revenues are recorded as assets on the balance sheet and are realized as cash is received.
