Accountancy, asked by vicky9994, 1 year ago

Where Are Accruals Reflected On The Balance Sheet?

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Answered by anildeshmukh
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An accrual is an expense that has been recognized in the current period for which a supplier invoice has not yet been received, or revenue that has not yet been billed. When an accrual is created, it is typically with the intent of recording an expense on the income statement. What is the impact of such an accrual on the balance sheet, where assets, liabilities, and equity items are located?

If an accrual is recorded for an expense, you are debiting the expense account and crediting an accrued liability account (which appears in the balance sheet). Since an accrued expense is usually only for a very limited period of time (such as to record an expense for a supplier invoice that will probably arrive next month), this liability is classified as a current liability. Therefore, when you accrue an expense, it appears in the current liabilities portion of the balance sheet.

It is possible (but not likely) that an accrued expense might appear in the balance sheet under the long-term liabilities classification, but only if you do not plan to settle the liability for more than a year.

If you record an accrual for revenue that you have not yet billed, then you are crediting the revenue account and debiting an unbilled revenue account. The unbilled revenue account should appear in the current assets portion of the balance sheet. Thus, the offsets to accruals in the income statement can appear as either assets or liabilities in the balance sheet.

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