Short definition: Accruals are accounting adjustments for revenues that have been earned but not yet received or expenses that have been incurred but not yet paid.
Explanation: Accruals are used to ensure that a company’s financial statements accurately reflect its financial performance and position. They are based on the accrual accounting method, which recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.
Example: An example of an accrued revenue is interest earned on a loan but not yet received. An example of an accrued expense is salaries earned by employees but not yet paid.
Additional information (optional): Accruals are important for matching revenues and expenses in the correct accounting period, which helps to provide a more accurate picture of a company’s profitability. They are also essential for complying with generally accepted accounting principles (GAAP).