Record to report / R2R – General Accounting – Accruals

One of the subcomponents affiliated to the trial balance process is accruals.

We discussed the Trial Balance in the following posts:

Ideally, accruals have to be run before a trial balance is prepared.

What are accruals?

Wikipedia defines accruals as:

Accrual (accumulation) of something is, in finance, the adding together of interest or different investments over a period of time. It holds specific meanings in accounting, where it can refer to accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These types of accounts include, among others, accounts payable, accounts receivable, goodwill, deferred tax liability and future interest expense.

http://en.wikipedia.org/wiki/Accrual

Thus the English meaning itself defines accruals, it simply means accumulation.

We had discussed this in our accounting section. To represent a true and fair view of the state of affairs of the company or business, all items of income or expense, and very importantly, the liability which the business may incur, has to be accounted for.

So, estimated entries are passed for the same, without the actual transaction taking place.

More in the next post..

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