Accruals are amounts of money that have been earned or spent but have not yet been received or paid. It may be money that you know you are going to be paid by a customer or money you owe to a supplier or employee.
These transactions are recorded in the accounting records as they occur, rather than when cash is received or spent. Accrual accounting provides a more accurate and full representation of a company’s financial performance and position, rather than cash accounting.
One reason accruals are important is that they help to better match revenues and expenses to the period in which they were earned or incurred.
For example, if a business provides a service in January but does not receive payment until February, the revenue from the service should be recorded in January, when the service was provided, rather than in February when the payment was received.
Accruals also help to ensure that the financial statements accurately reflect the business’s financial position at a given point in time.
By including accruals in the financial statements, the business can report on its assets, liabilities, and equity as they exist at the end of the accounting period, rather than just reporting on cash transactions.
This allows for a more accurate depiction of the company’s financial position and enables better decision making.
If you are a Sage 50 Accounts user and want some further help and guidance to get the most from your Sage software contact us
You could also take a look at our Sage Lady Academy. Our membership provides affordable training, support and mentoring from Bec (aka “The Sage Lady”) on all matters relating to Sage 50 Accounts, bookkeeping and accounting principles via training, masterclasses and our weekly Live Q&A, where you can submit questions for Bec to answer and show you how it’s done,plus much more!
“Any advice relating to accounts or tax should be sought from your tax accountant. Sage Accounts Solutions Limited will not be held responsible for any loss or damage caused as a result of the information contained herein.”