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Accrue is a verb that means to increase or accumulate over time. It frequently refers to the process of adding interest, income, or costs to an account or balance sheet in accounting and finance.
Although the word "accrue" can be used in a variety of settings, it typically connotes that something is expanding or accumulating as a result of an event or circumstance. For instance, when money is deposited and isn't handled for a while, interest begins to collect on the account. The amount of interest that accrues depends on how long the money is kept in the account. Expenses also accrue when they are incurred but not immediately paid for. For instance, until the supplier is paid, a company that purchases supplies on credit has an accumulated expense.
Accrued revenues and accrued expenses are the two primary types of accruals in accounting. Revenues that have been earned but are still pending are known as accrued revenues. A corporation, for instance, would have accrued income for December if it rendered service to a client in December but did not charge them until January. On the income statement, accrued revenues are reported as assets, which boosts net income.
Accrued expenses are expenses that have been incurred but not yet paid. For instance, if a business pays its staff at the end of each month, there is an accumulated expense for salaries at the conclusion of every day. The income statement's net income is reduced by accrued expenses, which are listed as liabilities on the balance sheet.
Accruals are important for matching revenues and expenses to the correct accounting period. This makes sure that the financial statements accurately reflect a company's performance and financial situation. Accruals demonstrate the amount owed or anticipated to be paid in the future, which aids in the more precise measurement of cash flows.
