Why it matters
Without the right cut-off, one month can look unusually profitable and the next unusually expensive. Accruals help an accrual-based set of accounts show the cost of the activity in that period. They need evidence and should be checked when the actual invoice arrives. Not every business uses the same accounting basis for tax.
A practical example
Your December electricity bill arrives in January. If part of the bill relates to the December year end, the accounts may include an estimated cost and a liability for that part. When the invoice is recorded, the estimate is cleared or adjusted so the cost is not counted twice.
A common misunderstanding
An accrual is not simply money put aside in a separate bank account. It is an accounting entry. It differs from a prepayment, where a payment relates to a future period. Ask which basis applies to your records before making year-end adjustments.
Sources & further reading
General information for UK readers, updated 3 November 2026. Examples are illustrative. Tax treatment depends on the facts and current rules; seek advice before making a decision.