Accruals recognise expenses incurred but not yet invoiced, and revenue earned but not yet billed, in the period they relate to. They are posted as adjusting journals at period end and reversed in the following period, once the invoice or the bill that they anticipated actually arrives.
What an accrual is
An accrual is an adjusting entry that puts a transaction in the period it economically belongs to. Electricity used in June is a June cost, even when the bill lands in July. Revenue behaves identically, so work delivered in June belongs to June whatever month the invoice goes out. The recognition and measurement rules that govern those judgements sit in the AASB accounting standards, which is the authority to check when a specific case is genuinely unclear.
Two directions cover almost everything a scale-up posts. An accrued expense is a cost incurred but not yet invoiced by the supplier, so it is recorded as an expense with a matching liability. Accrued revenue is work delivered but not yet billed, recorded as revenue with a matching receivable. Both reverse in the following period when the real document arrives.
Accruals basis versus cash basis
The accruals basis records transactions when they are earned or incurred. The cash basis records them when money moves. The ATO's guidance on choosing an accounting method for GST sets out where each is permitted, and most businesses above the small-business turnover thresholds are on the non-cash, accruals basis by default.
The practical consequence is the one founders trip over. A month can be profitable on an accruals basis and still be a month where the bank balance fell, because the profit and loss statement is not measuring cash at all.
That gap is worth understanding properly, because it is where most founder confusion about what a profit and loss statement is actually telling you begins.
Who is allowed to post one, and who reviews it
An accrual is an estimate. That is not a criticism of it, it is the point of it, but it means the entry carries judgement and needs a second pair of eyes before it lands in a reported number. In a two-person finance team that review often does not exist, and nobody notices until an auditor or an investor asks how a figure was arrived at.
The same test decides the automation question. Software will happily draft the journal from a schedule or a purchase order. The rule I would hold to is that AI produces a first draft, not a final answer, and a qualified person checks every number and signs off anything that reaches a board, an investor, an auditor or a regulator.[1] Accruals are exactly the category where that matters, because the entry is a judgement rather than a reconciliation.
Who owns accruals as the company grows
The first finance role in a scale-up is becoming a lot broader than it used to be. It now takes in the control functions, a reporting structure that stands up to scrutiny, R&D, the commercial side and FP&A modelling.[2] That is the pattern I hear from the finance leaders I interview on The CFO Track. Accruals sit inside the control half of that, and they are usually the first thing to slip when the person holding the role is stretched across all of it.
When it does slip, the symptom is not a wrong number. It is that reporting stops being trusted. On one engagement the core problem in finance was the robustness and maturity of the reporting and the functional structure behind it, because the business had grown quickly and finance had not kept up.[3] Accrual discipline is one of the clearest markers of whether that catch-up has happened.
| Who does it | What they own on accruals | |
|---|---|---|
| Bookkeeper or accountant | Posts the journal | Raises the accrual from a schedule, a contract or a purchase order and keeps the support behind it so the entry can be traced later. |
| Financial accountant or controller | Reviews and approves | Owns the judgement. Decides whether the estimate is reasonable, whether it reverses cleanly, and whether it survives an audit question. |
| CFO or Head of Finance | Explains the result | Answers for what the accruals did to the reported month in front of the board, and for whether the policy behind them is consistent. |
The hire to be careful about is the one who gets the entries right and cannot talk about them. I have seen a capable accountant where the financial reporting was done correctly but the relationship side was weaker, when what the business needed was someone comfortable getting out into the business, talking about what the numbers actually mean and how decisions change as a result.[4] On accruals that matters more than it sounds, because half the accrual balance is usually an estimate someone outside finance has to agree with.
If accruals, reconciliations and close are all landing on one person, the fix is structural. Here is how a startup finance team should be structured as it scales.
Common questions
What is an accrual in accounting?
An accrual is an adjusting entry that records a cost or a revenue in the period it belongs to rather than the period the cash moves. It exists because the alternative is worse. Without accruals a month's result depends on when suppliers happen to send their invoices and when customers happen to pay, which is information about other people's admin rather than about your business. The entry is reversed in the following period, when the real document arrives and replaces the estimate.
What is the difference between accruals and cash accounting?
Accruals accounting records transactions when they are earned or incurred. Cash accounting records them when money is received or paid. The choice is mostly not yours to make: the ATO sets out where each method is permitted for GST, and businesses above the small-business turnover thresholds generally use the non-cash, accruals basis whether it suits them or not. Where a business does still have the choice, the cash basis is simpler to run and considerably worse at telling you whether a month was any good.
Who should approve accruals in a small finance team?
Somebody other than the person who posted them. An accrual is an estimate, so it carries judgement, and in a two-person team that second review often quietly does not happen. The cost is rarely a wrong number in the month. It is that nobody can reconstruct how the figure was arrived at when an auditor or an investor asks six months later, and from that point the whole reporting pack gets treated as approximate.
Can AI post accruals?
It can draft them, and drafting is most of the keystrokes. What it cannot do is own the estimate. Software will read a contract or a purchase order and propose the journal quite happily, but somebody still has to decide the amount is reasonable and put their name to it, and that signature is what a board, an investor or an auditor is actually relying on. Accruals are where that bites hardest, since nobody has invoiced the amount yet and there is no document to reconcile the entry against.
References
- My one rule for using AI in finance: it produces a first draft, not a final answer. A qualified person must check every number and sign off anything that reaches a board, investor, auditor, client or regulator, so accountability stays human.
- What I see in the market: the first finance role is becoming a lot more broad, encompassing crucial control functions, reporting structures that stand up, R&D, commercial aspects and FP&A modelling.
- From an engagement I ran: the key challenge in finance was the robustness and maturity of reporting and functional finance, including the structure, because the business was growing quickly and finance hadn't kept up.
- From a search I worked on: the previous person in the finance role was a capable accountant where financial reporting was done correctly, but they probably weren't as strong on the relationship side. The business needed someone capable and comfortable getting out into the business, talking about what the numbers actually mean, talking through how we can impact decisions as a result of that result, and having those conversations.