# How to post accruals and deferrals

An accrual records a cost or income that belongs to this month but has no invoice yet. A deferral spreads a payment made now across the months it covers. Post a dated journal and reverse or release it on schedule.

Free tool: [Accrual and deferral calculator](https://www.pulsify.tech/free-tools/accrual-deferral-calculator/). Work out the monthly amounts to accrue or defer. The journal entry generator builds the journal.

## Why it matters

Without accruals and deferrals your profit moves with invoice timing, not with the work done. A large annual insurance bill hits one month hard. A delivery with no invoice yet is missing from costs.

Matching costs to the month they belong to makes your monthly reports comparable.

## The steps

1. **List what is missing.** Look for goods received, work done and services used with no bill yet. Ask the team for a list at cut-off.
2. **Work out the accrual.** Use the order, the delivery docket or the agreed price. Leave GST out until you hold a tax invoice.
3. **Post the accrual.** Debit the expense and credit an accrued expenses liability. Date it the last day of the month.
4. **Reverse it.** Set the journal to reverse on the first day of next month. When the bill arrives it replaces the accrual.
5. **List payments that cover more than one month.** Annual insurance, software subscriptions and rent paid in advance are common.
6. **Post the prepayment.** Debit a prepayments asset account. Credit the bank or payable.
7. **Release it monthly.** Each month debit expense and credit prepayments for one month's share. Check the balance runs to zero at the end of the cover.
8. **Check the balances.** At month end, list accruals and prepayments with the supporting document for each.

## Worked example

Example Distribution Pty Ltd has two items at 31 October.

| Item | Journal | Amount |
| --- | --- | --- |
| Pipe delivered 29 October, no invoice (accrual) | Debit purchases, credit accrued expenses | A$4,000.00 |
| Insurance paid 1 October for 12 months (deferral) | Debit prepayments, credit bank | A$12,000.00 |
| October share of insurance | Debit insurance expense, credit prepayments (12,000 / 12) | A$1,000.00 |
| Prepayment left at 31 October | 12,000 - 1,000 | A$11,000.00 |

October costs include A$4,000 for the pipe and A$1,000 for insurance. The accrual reverses on 1 November. The prepayment falls by A$1,000 each month.

## Common mistakes

- Forgetting to reverse the accrual, so cost counts twice.
- Accruing GST before you hold a tax invoice.
- Expensing a 12-month payment in one month.
- Having no support for accrual amounts.

## Common questions

### Do I need accruals for small amounts?

Set a limit, such as A$500. Ignore items below it.

### What is the difference between a prepayment and an accrual?

A prepayment is paid before the cost is used. An accrual is used before it is billed.

### Do accruals matter if I use cash accounting?

Accruals are for accrual-based reports. Check your reporting needs with your accountant.

## Next step

Use the [Accrual and deferral calculator](https://www.pulsify.tech/free-tools/accrual-deferral-calculator/) first. Then see [how to close the month in AP](https://www.pulsify.tech/how-to/close-the-month-in-ap-bills-accruals-unapproved-items/).

Source: https://www.pulsify.tech/how-to/post-accruals-and-deferrals/ (last checked 2026-10-20)