What is an accrual? Definition & examples

An accrual is a cost you've incurred but haven't yet been billed for. To match income and expenses to the right period, you recognise the cost now — creating a liability on the balance sheet — and clear it when the invoice arrives.

In one sentence

You've had the benefit, but you haven't paid (or been billed) yet — so you recognise the cost anyway.

Everyday examples

• Utilities used this month, billed next month
• Professional fees for work already done
• Staff bonuses earned but not yet paid
• Interest that has built up but isn't yet due

Accrual vs prepayment

They're mirror images. A prepayment is paid in advance (an asset); an accrual is incurred before payment (a liability). More on this in accruals vs prepayments.

How it's accounted for

Debit the expense and credit an Accruals liability at month‑end, then reverse when the real bill lands. Worked example: how to record accrued expenses in Xero.

The automated approach

WorkWithLottie proposes accruals for recurring suppliers and posts auto‑reversing journals so month‑end matches reality.

Frequently asked questions

Is an accrual a liability?

Yes. An accrual recognises a cost you've incurred but not yet paid or been billed for, so it sits on the balance sheet as a liability until the invoice arrives.

Why do you reverse an accrual?

Reversing prevents double-counting. Without a reversal, both the accrual and the actual supplier invoice would hit the profit & loss. Most teams post accruals as auto-reversing journals.

What's an example of an accrued expense?

Electricity used this month but billed next month, or professional fees for work already done but not yet invoiced.