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Accrue

To accrue means to accumulate or build up over time. In accounting, it refers to the recognition of revenues or expenses that have been earned or incurred but have not yet been received or paid. Accruing allows a company to record these amounts in its financial statements, ensuring that the financial performance for a given period accurately reflects all revenues earned and expenses incurred during that time, even if the cash hasn’t yet changed hands.

Example

A company that sells products on credit will accrue revenue at the time of sale, even though the payment will be received in the future.

Key points

• Refers to the accumulation of revenues or expenses over time.

• Ensures financial statements reflect true financial performance.

• Common in accrual accounting practices.

Quick Answers to Curious Questions

It means that the expenses are recognized and recorded in the financial statements when they are incurred, even if payment hasn’t been made yet.

To accurately reflect the revenue earned in a specific period, even if the cash payment hasn’t been received.

It ensures that all earned revenues and incurred expenses are included in the financial period they relate to, giving a more accurate picture of financial performance.