An accrual journal entry helps you record income or expenses when they happen, not when money moves. This system fits inside accrual accounting. It shows the real financial picture of a business. The accrual journal entry records unpaid income and expenses that a company must note before payments happen. It tells you what your business earned or spent, even if the cash is not in your hands. It keeps records correct and fair. This method supports better decision-making. You must use this when you follow the accrual basis journal entry system.
How to Record an Accrual Journal Entry Step-by-Step?
When you use accrual accounting, you must record what you earn or owe on time. You do this with accrual accounting journal entries. It helps you follow accounting rules. This method fits both small and big businesses. If you do not record your transactions correctly, your accounts will not match your real position. So, knowing the journal entry format for accruals is very important.
Step-By-Step Process To Record An Accrual Journal Entry
To make correct accrual entries in accounting, follow these simple steps:
- Identify the transaction: First, find out what is due. For example, a company receives services but has not paid yet. Or it earns money but does not get paid.
- Find the correct account: You need to know what accounts to use. For expenses, use the accrued expenses journal entry. For income, use the accrued income journal entry.
- Decide the date: Use the date when the event happened. Not the date when money moves. This follows the accrual basis journal entry method.
- Record the journal entry: You now use the journal entry format for accruals. This has a debit and a credit part. Always keep both equal.
- Use an adjusting journal entry if needed: At the end of the month or year, you may need to correct your entries. This is called an adjusting journal entry.
Accrual Journal Entry Format
In this example, the company owes salaries. But it has not been paid yet. So, you record the accrued expenses journal entry. Things to remember while making accrual journal entries
- Always record the adjusting journal entry before final reports.
- Use a proper chart of accounts.
- Match your end-of-year accrual journal entry with other financial records.
- Use audit trails for each entry.
- Never miss income or expense, even if not paid.
| Date | Account | Debit (₹) | Credit (₹) |
| 31-Mar-25 | Salaries Expense | 50,000 | |
| 31-Mar-25 | Accrued Salaries Payable | 50,000 |
By following these steps, you ensure your books are correct. You follow good rules of accounting. And your business can plan better. This is why knowing how to record an accrual journal entry helps you run your business smartly.
Common Examples of Accrual Journal Entries in Accounting
You see accrual entries in accounting often in day-to-day work. These entries make sure your records match the real work done. Many entries happen when payments are pending, but services or goods have been given or taken. Let’s now understand this better with real accounting journal entry examples.
Accrued Expenses Journal Entry
This is the most common example. You use this when you receive a service or goods but have not paid yet.
Example: Electricity bill due
Suppose your business received the March electricity bill of ₹8,000. But the bill is paid in April.
| Date | Account | Debit (₹) | Credit (₹) |
| 31-Mar-25 | Electricity Expense | 8,000 | |
| 31-Mar-25 | Accrued Liabilities | 8,000 |
This is an accrued expenses journal entry.
Accrued Income Journal Entry
This entry is for the income earned but not received.
Example: Interest income earned
You earned ₹5,000 interest in March. But the bank will credit it in April.
| Date | Account | Debit (₹) | Credit (₹) |
| 31-Mar-25 | Interest Receivable | 5,000 | |
| 31-Mar-25 | Interest Income | 5,000 |
This is the accrued income journal entry.
End of Year Accrual Journal Entry
At the end of the year, you must adjust everything. This is called an end-of-year accrual journal entry. You check for expenses or income that you must record before closing the books.
Example: Unpaid rent
You owe ₹10,000 rent for March. You will pay it in April.
| Date | Account | Debit (₹) | Credit (₹) |
| 31-Mar-25 | Rent Expense | 10,000 | |
| 31-Mar-25 | Rent Payable | 10,000 |
This helps your records show the true picture of March.
Salary Payable
Your staff worked in March, but you pay salaries in April.
| Date | Account | Debit (₹) | Credit (₹) |
| 31-Mar-25 | Salaries Expense | 40,000 | |
| 31-Mar-25 | Salaries Payable | 40,000 |
These real-life accounting journal entry examples help you know how and when to make accrual entries. You keep your books fair and clear. You follow correct rules and help your business stay ready for tax, audits, and reports.
Accrual Journal Entry vs Cash Basis
There are two main ways of keeping records in business: accrual basis journal entry and cash basis. Understanding how accrual journal entry vs cash basis works will help you choose what suits you better.
What is Cash Basis Accounting?
Cash basis only records money when it comes in or goes out. If you earn income but don’t receive money, you don’t record it. Same with expenses. This system is easy. But it hides the true work done.
Example:
You do work in March and get paid in April.
- Cash basis records it in April.
- Accrual basis records it in March.
What is Accrual Accounting?
Accrual accounting journal entries record things when they happen. It does not wait for money to move. This gives a real view of business activity. It uses a journal entry for accruals for every unpaid income or cost. Key differences table:
| Feature | Cash Basis | Accrual Basis |
| Time of recording | When cash moves | When an event happens |
| Accuracy | Less accurate | More accurate |
| Follows the matching principle | No | Yes |
| Used by | Small businesses | Large, growing, or listed companies |
| End of year entries | No | Needs end-of-year accrual journal entry |
Why is Accrual Better for Growing Businesses?
- It shows all the work done, not just the payments.
- Makes financial reports true.
- Helps match income with costs.
- Needed for audit, bank loans, and investors.
Cash basis is simple but hides the full story. The accrual basis gives a real and full picture. You see what is earned and what is owed. If your business grows, or wants loans or investors, use accrual accounting journal entries. This helps your business stay strong and ready.
Relevance to ACCA Syllabus
Accrual accounting forms the backbone of financial reporting in the ACCA syllabus. Students learn how to recognize revenue and expenses when they are earned or incurred, not when cash is received or paid. Mastery of accrual journal entry ensures proper matching of income and costs, a key concept tested in Financial Accounting (FA) and Financial Reporting (FR) papers. ACCA also sets the foundation for advanced topics like group accounts, performance measurement, and IFRS compliance.
Accrual Journal Entry ACCA Questions
Q1: What does an accrual journal entry usually involve?
A) Recording cash received before goods are sold
B) Recording income or expenses before cash is received or paid
C) Recording only cash-based transactions
D) Recording depreciation for fixed assets
Ans: B) Recording income or expenses before cash is received or paid
Q2: In accrual accounting, when should a company record an expense?
A) When the invoice is paid
B) When the service is delivered
C) When the cash is available
D) At the end of the year only
Ans: B) When the service is delivered
Q3: Which of the following is an example of an accrued expense?
A) A loan taken from a bank
B) Salaries incurred but not yet paid
C) Inventory purchase paid in advance
D) Rent paid for next year
Ans: B) Salaries incurred but not yet paid
Q4: What is the correct journal entry to record accrued interest expense?
A) Interest Expense Dr. / Cash Cr.
B) Cash Dr. / Interest Payable Cr.
C) Interest Expense Dr. / Interest Payable Cr.
D) Interest Payable Dr. / Interest Expense Cr.
Ans: C) Interest Expense Dr. / Interest Payable Cr.
Q5: Which principle supports the use of accrual journal entries?
A) Historical Cost Principle
B) Revenue Recognition Principle
C) Materiality Concept
D) Consistency Principle
Ans: B) Revenue Recognition Principle
Relevance to US CMA Syllabus
The US CMA exam focuses on performance management and financial decision-making, where accrual accounting plays a major role. Candidates must know how to prepare financial statements under the accrual basis and analyze them for variance, planning, and control. Mastering accrual journal entry helps in computing accurate net income and aligning revenues with related costs in Part 1: Financial Planning, Performance, and Analytics.
Accrual Journal Entry US CMA Questions
Q1: Which of the following best explains the purpose of an accrual journal entry?
A) It records revenue only when cash is received
B) It delays expense recognition
C) It matches expenses and revenues in the right period
D) It minimizes reported liabilities
Ans: C) It matches expenses and revenues in the right period
Q2: What does an accrual entry for utility expense look like if the bill hasn’t arrived yet?
A) Utilities Expense Dr. / Utilities Payable Cr.
B) Utilities Payable Dr. / Utilities Expense Cr.
C) Utilities Expense Dr. / Cash Cr.
D) Cash Dr. / Utilities Payable Cr.
Ans: A) Utilities Expense Dr. / Utilities Payable Cr.
Q3: How does the accrual basis differ from the cash basis?
A) Accrual basis records cash flows only
B) The accrual basis tracks assets only
C) Accrual basis recognizes events when they occur, not when cash changes hands
D) The accrual basis is used only in tax accounting
Ans: C) Accrual basis recognizes events when they occur, not when cash changes hands
Q4: Which of the following is NOT an accrual?
A) Prepaid rent
B) Interest income earned but not received
C) Wages payable
D) Taxes incurred but not yet paid
Ans: A) Prepaid rent
Q5: In which financial statement do accrual entries impact both income and liability?
A) Statement of Cash Flows
B) Income Statement only
C) Balance Sheet only
D) Both Income Statement and Balance Sheet
Ans: D) Both Income Statement and Balance Sheet
Relevance to US CPA Syllabus
For the US CPA Exam, accrual-based accounting is vital, especially in the Financial Accounting and Reporting (FAR) section. Understanding accrual journal entry is critical for recognizing revenue and expenses properly under US GAAP. It prepares candidates to produce GAAP-compliant financials, assess timing differences, and adjust for income measurement.
Accrual Journal Entry US CPA Questions
Q1: Under GAAP, which method must public companies use?
A) Cash Basis
B) Hybrid Basis
C) Accrual Basis
D) Modified Cash Basis
Ans: C) Accrual Basis
Q2: Which entry records wages incurred in December but paid in January?
A) Cash Dr. / Wages Expense Cr.
B) Wages Expense Dr. / Wages Payable Cr.
C) Wages Payable Dr. / Cash Cr.
D) Cash Dr. / Wages Payable Cr.
Ans: B) Wages Expense Dr. / Wages Payable Cr.
Q3: When should revenue be recognized under accrual accounting?
A) When cash is received
B) When the customer places the order
C) When the product or service is delivered
D) At year-end
Ans: C) When the product or service is delivered
Q4: Which financial statement is most affected by accrual journal entries?
A) Cash Flow Statement
B) Balance Sheet
C) Statement of Shareholder Equity
D) Notes to Accounts
Ans: B) Balance Sheet
Q5: What kind of account is Accrued Expenses?
A) Asset
B) Equity
C) Liability
D) Revenue
Ans: C) Liability
Relevance to CFA Syllabus
The CFA Level 1 Financial Reporting and Analysis topic teaches how to interpret financial statements under both IFRS and US GAAP. Understanding accrual journal entries is essential for analyzing a company’s true performance. Analysts need to know how timing differences affect revenue, expenses, and profits. It also prepares them for ratio analysis and earnings quality evaluation.
Accrual Journal Entry CFA Questions
Q1: Accrual accounting is required under which financial framework?
A) Tax Code
B) IFRS and US GAAP
C) Local Government Codes
D) Internal Budgeting Rules
Ans: B) IFRS and US GAAP
Q2: Why is accrual accounting preferred by financial analysts?
A) It tracks only cash transactions
B) It shows long-term trends and profitability
C) It avoids depreciation charges
D) It simplifies financial statements
Ans: B) It shows long-term trends and profitability
Q3: What happens if a company forgets to record an accrued liability?
A) Income gets overstated
B) Cash gets understated
C) Revenue decreases
D) Asset values rise
Ans: A) Income gets overstated
Q4: Accrued revenue represents:
A) Cash received in advance
B) Service performed but not yet billed
C) Expense incurred and paid
D) Goods returned
Ans: B) Service performed but not yet billed
Q5: Which ratio might be distorted by poor accrual accounting?
A) Current Ratio
B) Debt-to-Equity
C) Net Profit Margin
D) Accounts Receivable Turnover
Ans: C) Net Profit Margin
