Where Should You Record the Accruals on Your Balance Sheet?

When you are running a business, there are some occasions where you may need to accrue your revenue or expense. However, do you know where you should record such transactions? If you are doing the accounting tasks for your company on your own, you may have a look at the article below to understand how you should record the accruals (Also see Accounting – Accrual and Deferral) on your balance sheet. However, if accounting is not your thing, hiring an accounting firm in Johor Bahru will be very helpful for you as you can prevent yourself from generating inaccurate financial statements.

Accruals for Expenses

Most of the accruals that happen in business transactions are for the expenses. You will record accrued expenses when the expenses were incurred, but you have not recorded the related supplier invoices (Also see Procedures in a Supplier Audit). Most of the time, this happens because you have not received the invoice from your suppliers.

Most of the accrued expenses are short-term. So, in your balance sheet, you should record them in the current liabilities section (Also see Liabilities and Equity). You should record them in different accounts according to the types of accrued expenses. For example, you should record the interest accrual by crediting the interest payable account. If you want to record a wage accrual, you should credit the wages payable account. For payroll tax accrual, you should record that expense in the payroll taxes payable account with a credit.

If there are a few accruals with small amounts, you may record all of them in the “other liabilities” account as a part of the trial balance (Also see Steps to Prepare Trial Balance). You should never record the accruals in your accounts payable account. This is because to record the transactions in the accounts payable account in the accounting software; you should post the trades payable to it by using the accounts payable module.

Accruals for Revenue

This type of accrual is less common compared to the accrued expenses. You will record accrued revenues when you have earned the revenues from your client, but you have not billed the invoice to your client. When you bill your client, then you should record the sale in your accounting software by using the billing module.

There are some occasions where the accrued revenues may last for a few accounting periods before you find the right timing to bill the invoice to your client. However, accrued revenues tend to be short-term. Thus, in your balance sheet, you should record them in the current assets section. Typically, recording the accrued revenues means debiting the accrued revenue account and crediting the sales account (Also see Accounting – Debits and Credits). You should never record the accrued revenue in your accounts receivable account (Also see What are Trade Receivables and Non-trade Receivables). This is because to record the transactions in the accounts receivable account in the accounting software; you should post the trades payable to it by using the billings module.

When creating accrual journal entries, you should always remember to record them as reversing entries so that they will reverse themselves automatically when the next accounting period starts. If not, the accruals will most likely stay on your balance sheet even though they should have been removed from it a long time ago.

If the accruals on your balance sheet exceed a certain amount, the auditors may review them to obtain sufficient supporting documents that explain why you have recorded the accruals.