In the world of bookkeeping, few tasks are as important—and sometimes misunderstood—as accrual accounting. Whether you’re a business owner trying to stay on top of your books or a bookkeeper handling day-to-day financial records, understanding accruals is essential for accuracy, compliance, and informed decision-making.
Accrual accounting plays a critical role in providing a clear picture of your company’s financial health. By recognizing expenses and revenue when they’re incurred rather than when cash changes hands, businesses can make more informed decisions. If you’re new to accrual accounting, you can learn more about how the accrual method works from Investopedia to better understand its impact on your balance sheet.
What Are Accruals?
In simple terms, accruals are revenues earned or expenses incurred that haven’t been recorded yet because the cash hasn’t changed hands. It’s a way of matching income and expenses to the period in which they actually occurred, rather than when the money is received or paid.
For example:
- Accrued revenue: You complete a project in December but don’t get paid until January. That revenue should still show up in December’s financials.
- Accrued expenses: Your electric bill for December arrives in January. It needs to be reflected in December’s books.
Accrual accounting gives businesses a clearer picture of financial health, which is why it’s a critical part of tax preparation and financial reporting in Dallas Fort Worth and beyond.
Calculating Accruals Correctly
Accuracy is key when calculating accruals. You’ll want to:
- Review your contracts, invoices, and bills to determine what work has been completed or what obligations have been incurred within the reporting period.
- Estimate amounts when exact figures aren’t available, especially for recurring expenses like utilities, payroll, or interest.
- Document supporting details for your calculations to ensure transparency and maintain professional communication with stakeholders or your CPA.
Pro Tip from your Fort Worth, Texas bookkeeper: Always double-check your math. Incorrect accruals can throw off your balance sheet and create headaches during tax preparation.
Recording Accruals on the Balance Sheet
Once you’ve calculated your accruals, it’s time to record them. Accrued expenses are listed as liabilities because they represent money your business owes, while accrued revenues are listed as assets since they represent income you’re owed.
For example:
- Accrued Expenses Entry:
- Debit: Expense Account
- Credit: Accrued Liabilities (a liability account on the balance sheet)
- Accrued Revenues Entry:
- Debit: Accounts Receivable
- Credit: Revenue
Recording accruals properly ensures that your balance sheet accurately reflects your business’s financial standing—something every good bookkeeper knows is essential for professional communication with lenders, investors, and tax professionals.
Reversing Accrual
The final (and equally important) step in accrual accounting is reversing those entries in the next accounting period. This prevents double-counting expenses or revenue when the actual payment hits your books.
Here’s how it works:
- Once the invoice is paid or received, the original accrual is reversed.
- The actual payment is recorded normally.
- This keeps your financials clean and avoids inflating your income or expenses.
Many businesses in the Dallas Fort Worth area rely on reversing journal entries to streamline their month-end or year-end close process. It’s a best practice that shows solid bookkeeping and professional communication with everyone involved.
Why Accrual Accuracy Matters in Tax Preparation
Incorrect accruals can lead to inaccurate tax filings, potential penalties, or worse—missing out on tax-saving opportunities. Staying on top of accruals helps ensure your tax preparation is smooth and efficient, giving you peace of mind when working with your CPA or tax preparer.
Need Help? Entikis Bookkeeping Has You Covered!
Managing accruals doesn’t have to be overwhelming. Whether you’re running a small business in Burleson, Fort Worth, or anywhere across Tarrant County, having a trusted bookkeeper makes all the difference.
At Entikis Bookkeeping, we specialize in professional bookkeeping services, tax preparation support, and keeping your balance sheet in tip-top shape. Our team understands the unique needs of businesses in Fort Worth, Texas, and the greater Dallas Fort Worth metroplex. Plus, we’re committed to professional communication every step of the way.
If you’re looking for professional bookkeeping services, please contact us at Admin@Entikis.Com or 817-415-1715 to learn more about how Entikis Bookkeeping can support your journey to success! Located at 640 Taylor St Suite, Fort Worth, TX, United States, we proudly serve businesses in Burleson, Fort Worth, and the surrounding Tarrant County metroplex.
