Accruals: recording costs in the period they belong to

An accrual records a cost in the period that incurred it rather than the period the invoice happened to arrive in. Without accruals a month looks cheap because a supplier was slow, and the next month looks expensive for the same reason — and anybody comparing the two is reading the supplier's admin rather than the business.

What accruals are for

• Costs incurred but not yet invoiced: work done by a contractor, utilities consumed, services delivered late in the month.
• Costs that span periods, such as a quarterly bill covering three months of consumption.
• Staff costs earned and not paid: bonuses, holiday pay, overtime from the final week.
• Anything where receiving the invoice is a separate event from receiving the benefit — which is most things.
• Not provisions for things that may happen, which are a different judgement with different rules.

Deciding the amount

Use the best estimate available at the time, and prefer a method you can repeat. A purchase order gives you the agreed price; a contract gives you a rate and a quantity; a previous invoice for the same thing gives you a usable approximation. Where nothing exists, a considered estimate recorded with its basis beats both a guess and an omission — the point of an accrual is to be approximately right rather than precisely absent. Round sensibly and do not spend an afternoon refining a figure that will be replaced by an invoice within weeks.

Reverse the accrual in the following period rather than leaving it to be netted off against the invoice. Reversing automatically is what prevents the commonest error in this area, which is double-counting the same cost once as an accrual and again when the real invoice is posted.

The accruals that become permanent

1. Review the accruals listing each month and ask what each one is waiting for — an invoice, a decision, or nothing.
2. Chase the missing invoice rather than accruing it again, since a cost accrued for six months usually means a supplier who never billed you.
3. Release anything that is no longer expected, with a note of why, instead of carrying it quietly.
4. Watch for accruals that are really disputes, because those need resolving rather than re-accruing.
5. Keep the basis of each estimate with the entry, so next month somebody can repeat or correct it rather than inventing a new number.

Ettex Sheets is enough to hold the listing — description, amount, basis, the period it relates to and what it is waiting for — which turns the monthly review into a short conversation instead of an excavation. What is actually owed sits in the creditors ledger, and the two should reconcile once the invoices land.