Plain definition
An accrual is the recognition of income or expense in the period in which it is earned or incurred when billing or cash movement occurs later. In practical close work, the word often means a specific adjustment based on work performed, goods received, contract terms, or a supportable estimate. An expense accrual normally creates a liability; an income accrual may create a receivable, contract asset, or another balance depending on the right to consideration and the applicable requirements.
Accrual accounting is the wider reporting basis. An accrual is one entry used to apply that basis at a reporting date.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Employees work the final six business days of June. Their approved daily payroll cost is , but payday is 5 July. The June close records payroll expense and accrued payroll liability for the six days. July's cash payment settles the liability; it should not make June labor disappear simply because no money left the bank in June.
The illustration relies on approved payroll data. Overtime, bonuses, taxes, and leave need separate evidence and may follow different recognition or payment patterns.
Why it matters
A company that omits the accrual can report a June labor margin it did not earn. If management uses that inflated margin to set prices or bonuses, the later July payment will reveal a cost too late and in the wrong comparison period.
Practical consequence
At close, ask each operating owner what was delivered, received, or worked before cut-off but not yet invoiced or paid. Tie the answer to a contract, receiving record, timesheet, rate, or other evidence; document the estimate and account classification; and assign an owner to compare it with the later invoice or payroll run. Do not use a rounded recurring accrual when current activity is known to have changed.