Accruals

Accruals are accounting entries that recognize the economic effects of transactions and events that have occurred but have not yet been recorded in the company's financial statements. Accruals are used to ensure that the company's financial statements accurately reflect its financial position and results of operations.

There are two types of accruals:

• Deferred revenues are revenues that have been earned but have not yet been received in cash. For example, a company may sell a product on credit and recognize the revenue when the product is sold, even though the cash will not be received until later.
• Expensed costs are costs that have been incurred but have not yet been paid in cash. For example, a company may pay its employees on a monthly basis, but it may recognize the expense when the employees work, even though the cash will not be paid until later.

Accruals are important because they help to ensure that the company's financial statements are accurate and reflect its true financial position and results of operations. Without accruals, the company's financial statements would not reflect the full amount of its revenues and expenses, and its financial position and results of operations would be misstated.

Accruals can be classified as either operating accruals or non-operating accruals. Operating accruals are accruals that relate to the company's normal business activities, such as deferred revenues and expensed costs. Non-operating accruals are accruals that do not relate to the company's normal business activities, such as interest income and interest expense.

Accruals are an important part of the accounting process and help to ensure that the company's financial statements are accurate and reflect its true financial position and results of operations.