when something financial accrues it essentially builds up to be paid or received in a future period both assets and liabilities can accrue over time the term accrue when related to finance is synonymous with an accrual under the accounting method outlined by generally accepted accounting principles gaap and international financial reporting standards ifrs 
an accrual is an accounting adjustment used to track and record revenues that have been earned but not received or expenses that have been incurred but not paid think of accrued entries as the opposite of unearned entries with accrued entries the corresponding financial event has already taken place but payment has not been made or received accepted and mandatory accruals are decided by the financial accounting standards board fasb which controls interpretations of gaap 1 accruals can include accounts payable accounts receivable goodwill future tax liability and future interest expense special considerationsthe accrual accounting procedure measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur giving a better picture of the company s financial health and causing asset or liability adjustments to build up over time this is in contrast to the cash method of accounting where revenues and expenses are recorded when the funds are actually paid or received leaving out revenue based on credit and future liabilities cash based accounting does not require adjustments while some very small or new businesses use cash accounting companies normally prefer the accrual accounting method accrual accounting gives a far better picture of a company s financial situation than cost accounting because it records not only the company s current finances but also future transactions if a company sold 100 worth of product on credit in january for example it would want to record that 100 in january under the accrual accounting method rather than wait until the cash is actually received which may take months or may even become a bad debt types of accruesall accruals fall into one of two categories either revenue or expense accrual revenue accruals represent income or assets including non cash based ones yet to be received these accruals occur when a good or service has been sold by a company but the payment for it has not been made by the customer companies with large amounts of credit card transactions usually have high levels of accounts receivable and high levels of accrued revenue assume that company abc hires consulting firm xyz to help on a project that is estimated to take three months to complete the fee for this job is 150 000 to be paid upon completion while abc owes xyz 50 000 after each monthly milestone the total fee accrues over the duration of the project instead of being paid in installments whenever a business recognizes an expense before it is actually paid it can make an accrual entry in its general ledger the expense may also be listed as accrued in the balance sheet and charged against income in the income statement common types of accrued expense include interest taxes and other payments sometimes need to be put into accrued entries whenever unpaid obligations should be recognized in the financial statements otherwise the operating expenses for a certain period might be understated which would result in net income being overstated salaries are accrued whenever a workweek does not neatly correspond with monthly financial reports and payroll for example a payroll date may fall on jan 28 if employees have to work on january 29 30 or 31 those workdays still count toward the january operating expenses current payroll has not yet accounted for those salary expenses so an accrued salary account is used there are different rationales for accruing specific expenses the general purpose of an accrual account is to match expenses with the accounting period during which they were incurred accrued expenses are also effective in predicting the amount of expenses the company can expect to see in the future 