The accounting and bookkeeping term accruals refers to adjustments that must be made before a company's financial statements are issued. Accruals involve the following types of business transactions:

One example of an accrual of an expense and liability is a major repair that occurs in the final month of the accounting year, but is not paid until the bill is received in the first month of the following year. For the current year's financial statements to be complete (under the accrual method of accounting) the following is necessary:

To record this accrual, an adjusting entry is made that debits Repairs Expense and credits Accrued Expenses Payable.

One example of an accrual of revenues occurs at your electric utility company. For instance, during December the utility likely uses natural gas and/or coal plus many employees to generate the electricity used by its customers in December. However, the utility does not bill its customers for that electricity until after it reads the meters in January. As a result, the utility's financial statements will need an accrual adjustment so that:

The accrual adjustment will debit the current asset account Accrued Receivables and will credit the income statement account Accrued Electricity Revenues.

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