What is Accruals?
Accounting entries that record revenue earned or expenses incurred before the related cash is received or paid.
Definition
Accruals are the core mechanism of accrual-basis accounting, which records economic events when they occur rather than when cash changes hands. An accrued expense recognises a cost that has been incurred but not yet invoiced or paid, such as wages or utilities at month-end, while accrued revenue recognises income earned but not yet billed. They ensure that financial statements match revenue with the expenses that generated it in the correct period, satisfying the matching principle. Accruals are typically reversed in the following period when the actual invoice or payment is processed.
How Accruals Works in ERP
An ERP supports accruals through recurring and reversing journal entries that finance teams set up during the period close, and through automated accrual logic such as goods-received-not-invoiced for purchases. The system can calculate accruals from open purchase orders, timesheets, or contracts, post them to the general ledger, and automatically reverse them in the next period. This keeps each accounting period complete without permanently distorting later periods.
ERP Vendors with Strong Accruals
Oracle NetSuite
The original cloud ERP — built for fast-growing companies
Sage Intacct
Best-in-class cloud financials for services and nonprofits
Microsoft Dynamics 365
Modular ERP + CRM tightly integrated with Microsoft 365
Oracle ERP Cloud
Enterprise cloud ERP with deep financials and analytics
Frequently Asked Questions
What is the difference between an accrual and a deferral?
An accrual records revenue or expense before the cash moves, such as recognising electricity used but not yet billed. A deferral does the opposite, delaying recognition of cash already received or paid until it is earned or used, such as prepaid insurance or deferred revenue. Both adjust the timing so results land in the right period. ERPs handle both through scheduled journal entries and revenue or expense schedules.
Why are most accrual entries reversed the next period?
An accrual estimates a cost or revenue that has not yet been processed through the normal invoice cycle. When the actual invoice arrives in the next period, posting it on top of the accrual would double-count the amount. Reversing the accrual at the start of the new period clears the estimate so the real transaction can be recorded cleanly. ERPs automate this by flagging accrual journals as auto-reversing.