Accounting glossary

Accruals

What accruals are, how to record them in Xero or QuickBooks, and how the UK, AU, CA, NZ, and SG tax authorities treat the accruals basis in 2026.

By ExpenseFlow team
· 18 May 2026

Definition

An accrual is an expense incurred or revenue earned in an accounting period but not yet invoiced or paid in cash. Booking accruals at period end aligns income and costs to the period they relate to, which is the basis of double-entry accounting under the accruals concept.

What accruals mean in practice

Take an electricity bill received on 3 January for the period 1 December to 31 December. The bill is dated and paid in January, but the electricity was consumed in December. Under the accruals concept, the cost belongs to December. The bookkeeper records the expense in December with a corresponding accrued liability, and reverses the entry in January when the invoice arrives.

The mirror case is accrued revenue. A consulting firm delivers a piece of work on 28 December but does not invoice until 5 January. The revenue is December revenue. The firm books a debtor in December and reverses the accrual when the invoice goes out in January.

Practically, accruals are produced by three workflows: a month-end timing review of recurring costs (utilities, rent, payroll), revenue recognition for work-in-progress on long projects, and one-off adjustments for items like accrued interest or staff bonuses. In modern accounting platforms like Xero and QuickBooks, accruals are entered as manual journals at period end and auto-reversed in the following period.

How accruals work by country

United Kingdom

HMRC requires the accruals basis for incorporated businesses and any sole trader with turnover above the cash-basis threshold, which is 300,000 of trading income from 6 April 2026. Smaller traders can opt into the cash basis. The Making Tax Digital quarterly updates accept either basis, but the year-end final declaration must be on the basis chosen at registration.

Australia

The ATO lets small businesses with aggregated turnover below 10 million account for GST on the cash basis. Income tax is always reported on accruals once a business has stock, employees, or work-in-progress. The Single Touch Payroll regime is accruals-aligned: wages are reported as earned, not as paid.

Canada

The CRA requires the accruals basis for all corporations and partnerships. The only meaningful exception is section 28 of the Income Tax Act, which permits cash-basis reporting for farming and fishing income. GST/HST is reported on accruals for any registrant above the 1.5 million quick-method ceiling.

New Zealand

Inland Revenue lets GST registrants choose between cash and accruals depending on turnover: cash basis is available under 2 million, and accruals is mandatory above 24 million. Income tax is always accruals once a business is past the hobbyist threshold. The cash basis for GST does not change the income tax basis.

Singapore

ACRA’s Financial Reporting Standards (FRS) require all incorporated entities to prepare financial statements on the accruals basis. IRAS allows a narrow cash-basis exception for declared professional service practices, but the corporate income tax return then has to reconcile back to accruals for tax computation.

The accruals concept underpins several adjacent bookkeeping entries you will see at period end:

  • A prepayment is the opposite of an accrued expense: cash paid in advance for a service to be received in a later period.
  • Deferred revenue is cash received before the service has been delivered, the mirror of accrued revenue.
  • An accrued cost sits on the balance sheet as part of accounts payable, and accrued revenue sits in accounts receivable.
  • The mechanism for recording an accrual is a journal entry.
  • The bulk of accrual work happens during the year-end close.

See also

For jurisdiction-specific accruals work, see the UK VAT, AU GST/BAS, and CA GST/HST guides. For the practical mechanics of posting an accrual into your accounting platform, see how to record journal entries in Xero or QuickBooks Online.

FAQ

See the answered questions above for cash vs accruals accounting, when to switch basis, and how accruals interact with the tax bill.

Questions, answered

Common questions

What is the difference between accruals and cash accounting?

Cash accounting records a transaction when money moves. Accruals accounting records it when the economic event happens, regardless of payment timing. A January invoice paid in March is January revenue under accruals, March revenue under cash.

When do I have to switch from cash to accruals?

It depends on jurisdiction and turnover. The UK threshold is 300,000 of trading income from 2026-27. The ATO threshold is 10 million for the cash GST basis. Most corporations are required to use accruals regardless of size.

Do accruals affect my tax bill?

Yes. Accruals typically pull income forward into earlier periods and push deductible expenses into the periods they relate to, which can raise or lower the current-year tax bill compared with cash basis. The cumulative tax over multiple years is broadly the same, but timing matters when rates change.

Keep exploring

Prepayment

An asset on the balance sheet representing cash paid in advance for a good or service to be received in a later period, recognised as an exp

Deferred revenue

A current liability on the balance sheet representing cash received from a customer for a good or service the business has not yet delivered

Accounts payable

A current liability on the balance sheet representing money the business owes to suppliers for goods or services received but not yet paid f

Accounts receivable

A current asset on the balance sheet representing money customers owe to the business for goods or services delivered but not yet paid for,

Journal entry

The fundamental unit of double-entry bookkeeping: a dated record that debits one or more accounts and credits one or more others by equal am

Year-end close

The accounting process of finalising the books for a fiscal year: posting all accruals, prepayments, depreciation, and other adjustments, re

Track accruals without spreadsheets

ExpenseFlow keeps your books clean by encoding the rules behind terms like this directly into capture and categorisation.