Accruals and provisions recognise a cost or income in the period it belongs to, even when the cash moves later. They spread a known amount over time and track what remains, so the books reflect economic reality rather than just bank movements.
- What accruals and provisions are for
- How the schedule allocates and tracks a balance
- How they generate journals and tie to period close
How it behaves
Allocating over time
You define an amount and a schedule, and the tool calculates the value to recognise each period while tracking the running balance automatically. Rather than remember to post a slice every month, you set it up once and let it allocate.
It generates the journals
Each instalment, and the final settlement, is posted as a journal entry the tool generates, so the accounting stays consistent and you are not hand-writing the same entry repeatedly.
Tied to period close
Provisions connect to the period close: a provision can automatically reverse in the next period, which is the correct treatment for an estimate that will be replaced by the real figure when it arrives.
Worked example
You expect a 12,000 annual audit fee, so you provide 1,000 a month. Each period close posts 1,000 to expense and builds the provision; when the actual invoice arrives, the accumulated provision absorbs it, and the profit and loss was never lumpy.
Edge cases and good practice
- Accrual versus provision. Accrue a cost you are fairly sure of; provide for one that is estimated and may be reversed.
- Let it auto-reverse where the estimate will be superseded, rather than unwinding by hand.
Related
- Reference: Accounting Periods
- Reference: Journal Entry (adjusting and reversing)