Glossary
Accrual
An expense that has been used but not yet paid for by the year end.
What it means
A liability for goods or services received in the period for which payment has not yet been made, recognised so that expenses match the period they relate to.
Example
If electricity for December is unpaid at the year end, it is accrued as an expense and a current liability.
Why it matters
Accruals ensure the income statement shows the full cost of the period, following the matching concept.
In practice
An accrued expense is recorded so that the income statement shows the full cost used during the year, even though payment is still outstanding. This follows the matching concept. The unpaid amount is added to the expense and also appears as a current liability in the statement of financial position.
Suppose rent is RM1,200 a month, but only eleven months (RM13,200) have been paid by the year end. RM1,200 is accrued. The income statement shows RM14,400 of rent and RM1,200 sits among current liabilities. When the payment is made next period, it clears the accrual. It does not create a new expense.
Students often confuse an accrual with a prepayment, its opposite. An accrual is an expense used but not yet paid. It is a liability and it increases the charge. A prepayment is an expense paid in advance. It is an asset and it reduces the charge.
If accruals and prepayments keep coming out the wrong way round, one of our teachers can work through a set of year-end adjustments with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.3 Other payables and other receivables (page 14).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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