Glossary

Accrual

An accrual records an expense incurred or income earned before any cash has actually moved — the foundation of accounts that reflect reality, not just the bank balance.

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Earned, not paidRecognised before cash moves

Accruals basisStandard for company accounts

Definition

An accrual is an accounting entry that recognises an expense or income in the period it relates to, rather than when the money changes hands. If your company has used a month of electricity but the bill has not yet arrived, the cost is accrued so it lands in the right month. The same applies to income earned but not yet invoiced or received.

Why it matters

UK company accounts are prepared on the accruals basis, which is why profit on paper can differ from the cash in the bank. A profitable month can still feel tight if customers have not paid, and a quiet month can hold cash from earlier work. Lenders read accounts on this basis, so understanding accruals helps you see what your numbers are really saying. Where the timing gap between earning and being paid causes a squeeze, that is a working capital issue rather than a profit one — see working capital finance.