Accruals explained

Accruals, accrued expenses, and accrual accounting. The accrual principle is used extensively in the business world, but not intuitively clear to everyone. This short tutorial provides clear and simple examples of the accruals concept and accrual journal entries, so you can contribute to the discussion in your company next time the topic comes up!

⏱️TIMESTAMPS⏱️
0:00 Introduction to accruals
0:42 Expense accruals vs revenue accruals
1:10 Expense accruals
3:25 Accrual example
5:18 Accrual journal entry
6:35 Manual accruals
7:42 Accrued revenue

In many companies, the topic of accruals resurfaces at the end of every period, usually as a variation on this question asked by the CFO or corporate controller: “Quarter-end is near…. Do you have any accruals that need to be included?” Most finance people would know what the CFO means here, and the CFO probably assumes the rest of the business does as well, but that is often not the case.
The question from the CFO could actually mean two things: are there any expense accruals to be made, or are there any revenue accruals to be made? You would make an expense accrual when expenses have been incurred for which we have not yet received an invoice from a supplier. You would make a revenue accrual when goods or services have been delivered, in other words the revenue has been earned, but we have not yet actually billed the customer. Using accruals allows a business to more closely adhere to the matching principle. It is one of the #accountingbasics that both finance and business leaders need to understand.

If you have any accrual examples for your company, then please share them as a comment below this video.

Once you understand accruals after watching this video, deferrals and prepaid expenses are an important topic to study next:

Philip de Vroe (The Finance Storyteller) aims to make strategy, #accounting, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

[angelenejean-louis]

I got hired 3-weeks ago as a Financial Analyst and my work involves lots of accruals and closing the books. My company offers no real training and it's my first job in my field of study since I graduated college two years ago, so this video is life saving for me. I had completely forgotten about Accruals from my Accounting classes. Thank you so much for making this detailed tutorial.

[konstancyja]

Its better than the lecture at university :)

[talentmatewe]

Thank you so much for this clear and uncomplicated explanation. I have just got hired as a finance intern, they are not really training me and I am responsible for accruals and month end close. This was really helpful thank you.

[rauljimenez]

Not only did you help me further understand a solidify the concepts, but you provided great hints and workflow, thank you!!

[cactusmilo]

This has been very helpful for me. I do consultancy for many companies and now that I’m getting more involved on the financial side of the implementation the accruals were a question in my mind. Great and simple explanation.
Now I understand fully the automatic or manual ‘accrual reversal’ needed by month end.

[MrKungfuAsh]

Thank you. Very well explained. Especially the examples. This is really good for work related and job interview preparation.

[mollymacfadden]

I printed all your examples to help me when my mind goes blank during this process. Thank you.

[SuperReddragon]

Amazing, watching this before my interview today!

[rosieb]

Thank you, this is so helpful, I got stuck in class with the lecturer over complicating the accruals. This video really makes it so much clearer.

[koo-data]

These videos have saved my ass, You explain these concepts better than my finance professor does LOL.

[jobharath]

This is the best video on YouTube explaining this concept 👍🏽🔥🧡

[Varsha_kulkarni_]

Concept explained in the best possible manner 👍🏻

[locekamado]

Good points and easy to understand and share with non finance people.

[rileymalcolmson]

Thank you! i have a final in two hours and this is by far the clearest explanation so far

[TheFinanceStoryteller]

Where and when did you first come across the term "Accruals"? Let me know by commenting below.

[AtikaZnl]

Helped a lot!! Thanks so much!! God bless!

[AndresSalazararthub]

this is hardcore. I got lost with the statement. Around min 5

[petergostoso]

Thank you very much. It was extremely helpful 😊

[ninaehr]

accrual examples: travel expenses, medical expenses, dental expenses, accommodation allowance, etc

[leiahdiggins]

Ace Accounting’s controller, John Ace, hired an assistant, Annette Black. While guiding her in financial statement preparations, John Ace encountered opposition from Annette Black. She disagreed with making an adjusting journal entry at year-end, December 31, to accrue staff bonuses, since the bonuses were not paid. She wanted to wait until the staff bonuses were paid in February to record the bonuses. Her reasoning was that the results would be identical.
Required:
Write a business memo to explain to Annette Black why the adjusting journal entry to accrue the staff bonuses is or is not required.


how would i work through this problem? Im completely stumped