Accrual

    Accruals involve adjusting a company’s business transactions before issuing financial statements. For example, accruals are used to allocate capital expenditures over time or account for warranty costs. There are different types of business transactions involved in accruals. 

    • Amounts you have already spent( penalties, losses, costs, taxes) but not yet recorded in your accounts. 
    • Monthly earnings, profits, and product margins have been procured but not yet recorded in your accounts. 

    Example of an Accrual: 

    One example of accrual accounting is when a company carries out a significant repair at the end of the year but does not pay for it until the bill is received in the first month of the next year. 

    In order to file complete financial statements for the current year using the accrual method of accounting, you require:  

    • The income report for this year should briefly outline the repair expense. 
    • The balance sheet as of the end of each year- must include a brief description of the related liability that is recorded on the balance sheet. 
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