An accrual records income or a cost in the period it is earned or incurred, even if the cash has not moved yet. This guide explains the concept with clear examples.
Published July 2026 · Updated July 2026
An accrual records income or an expense when it is earned or incurred, rather than when the money changes hands. It is the core idea behind accrual accounting.
They stop your results looking lumpy and misleading. If you did the work in March, the income belongs to March even if the customer pays in April, so your March profit reflects what actually happened that month.
The same works in reverse for costs. An electricity bill covering March that only arrives in April is accrued back into March, so the cost sits in the period that used the electricity.
You finish a £2,000 project on 28 March but get paid on 15 April:
Not always. Smaller businesses can often use the simpler cash basis. Most limited companies must use accruals.
An accrual recognises something before the cash moves; a prepayment spreads a cost already paid across the periods it covers.
Accrued income and accrued costs appear on the balance sheet until the cash catches up, then they clear.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.