Accruals, accrued expenses, and accrual accounting. The accrual principle is used extensively in the business world, but not intuitively clear to everyone. This short tutorial provides clear and simple examples of the accruals concept and accrual journal entries, so you can contribute to the discussion in your company next time the topic comes up!

⏱TIMESTAMPS⏱
0:00 Introduction to accruals
0:42 Expense accruals vs revenue accruals
1:10 Expense accruals
3:25 Accrual example
5:18 Accrual journal entry
6:35 Manual accruals
7:42 Accrued revenue

In many companies, the topic of accruals resurfaces at the end of every period, usually as a variation on this question asked by the CFO or corporate controller: “Quarterend is near…. Do you have any accruals that need to be included?” Most finance people would know what the CFO means here, and the CFO probably assumes the rest of the business does as well, but that is often not the case.
The question from the CFO could actually mean two things: are there any expense accruals to be made, or are there any revenue accruals to be made? You would make an expense accrual when expenses have been incurred for which we have not yet received an invoice from a supplier. You would make a revenue accrual when goods or services have been delivered, in other words the revenue has been earned, but we have not yet actually billed the customer. Using accruals allows a business to more closely adhere to the matching principle. It is one of the #accountingbasics that both finance and business leaders need to understand.

If you have any accrual examples for your company, then please share them as a comment below this video.

Once you understand accruals after watching this video, deferrals and prepaid expenses are an important topic to study next:
Adjusting entries complete tutorial    • Adjusting entries  
Deferred revenue    • Deferred revenue explained  
Prepaid expenses    • Prepaid expenses explained  
Prepaid expense examples    • Prepaid expense examples  

Philip de Vroe (The Finance Storyteller) aims to make strategy, #accounting, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!