What is an Accrual?
An accrual is an accounting entry recognising a revenue or an expense in the period it relates to, before the corresponding cash has been received or paid. It is the mechanism that allows financial statements to reflect economic activity rather than bank movements, and it is created at period end when the obligation exists but the invoice does not.
Common accrual entries
Accrued expenses record costs incurred but not yet invoiced: consumed utilities, services delivered by a supplier who bills in arrears, employee bonuses earned but paid next quarter. The entry debits the expense and credits a liability.
Accrued revenue mirrors this for work performed but not yet billed, common in project-based businesses. Alongside sit prepayments, where cash is paid ahead of consumption, and deferred revenue, where cash is received before delivery. All four exist to place the transaction in the right period.
Why accruals attract audit attention
Accruals are estimates, and estimates involve judgement. The amount of a year-end bonus accrual, the value of unbilled work, and the size of a warranty provision all rest on assumptions that can be adjusted. That flexibility is where earnings management lives.
Auditors therefore focus on the supporting basis, the consistency of methodology between periods, and what happened to last year's accruals. Systematic over-accrual followed by release into a weak quarter is a recognised pattern, as are large manual entries posted close to the reporting date by someone outside the normal process.
Accrual and Supervizor
Accrual entries concentrate manual intervention, which is why they concentrate errors. Supervizor's finance transformation solution tests them across every entity. Teams use it to:
- Test every accrual entry for supporting documentation, approval and methodological consistency
- Track accrual reversals and identify systematic over- or under-accrual across periods
- Flag high-risk manual entries posted near the reporting date or outside normal approval routes