Being the foundation of the appropriate decision-making processes within a business is financial reporting. To most companies especially the ones in QuickBooks Online (QBO), one of the most important elements in ascertaining this precision is to comprehend and keenly oversee month-end accruals. This tutorial will show you how to work with month accruals in QBO, what it is, how to create it and reverse it, some example ones, what accruals are, when they should be reversed, whether it can be automated, how to configure QBO as accrual and finally what is the difference between accrual and cash-based accounting.
What are Month-end Accruals and Why Accruals are Important?
Essentially, the accrual accounting system requires that revenues should be recorded when accrued and expenses when accrued and recorded whether or not cash is exchanged. To make this principle applicable, adjustments are done at the end of an accounting period (usually a month) and these adjustments are what are referred to as month-end accruals. They are needed to survive:
True Financial statements
Accruals will guarantee that your Profit and Loss statement (Income Statement) is a true account of revenue produced and consumed by your expenses during a given period. In the same regard, a more realistic picture of assets and liabilities is defined in your Balance Sheet.
Compliance to Matching Principle
The most significant accounting concept is the matching principle, which refers to the matching of expenses incurred with the revenues that helped to earn those expenses during the same accounting period. It is made easier by use of accruals which make all the relevant expenses recorded even when the invoice is not there, or when payments have not been made.
Informed Decision-Making
Properly accounted financial records will allow business owners and managers to make more informed decisions in terms of pricing, budgetary issues, resource preparation and future plans.
Compliance and Reporting
The accounting requirement of accrual-based financial statements applies to many businesses particularly those that have external stakeholders or those that may be open to audit.
How to Add Month- End Accruals in QuickBooks Online?
Journal Entries are usually used for adding accruals in QuickBooks Online. By means of a journal entry you can record some transaction which cannot be conformable with classical sales or expenditure entries.
It is the following process:
1. Identify the Accrual Need
Find out the revenues that have been earned but are yet to be invoiced or the expenses that have been incurred but not yet paid or have had the due invoice.
2. Determine Accounts
Each journal post will require a minimum of two accounts:
- For Accrued Revenue: Again, a general account where Revenues are normally recorded such as an Accounts Receivable account (in case you plan to charge later), or a particular an account of Accrued Revenue asset should be debited and a Revenue account credited.
- For Accrued Expenses: Where you paid in advance for an expense to be incurred in a future period a Prepaid Expense asset account will be credited and an Expense account debited; a specific Accrued Expense liability account will be credited in any other case.
3. Journal Entry to be created:
- On the left side navigation bar, at the top, visit + New (plus sign).
- Click other, and choose Journal Entry.
- Accrual Date: The last day of the month for which you are making the accrual (e.g. June 30, 2025).
- Journal No.: (Optional) it can be a number used to follow-up.
- Debit/Credit: Put in the right accounts and amounts. It’s crucial to remember that credits and debits must be equal.
- Description: Give a brief and definite description of the accrual (e.g. Accrued June Rent, Accrued Unbilled Consulting Fees). This plays an important role in audit trails and understanding.
- Close and Save.
QuickBooks Online Reversal of Month-End Accruals
Accruals are usually adjusting entries that are short-term. In the next period of accounting they must be cancelled to avoid counting twice or misstating the balances after the real transaction takes place.
Another Journal Entry of the opposite debits and credits of the original Journal Entry accrual is the most typical way to reverse the accrual in QuickBooks Online.
1. Identify the Accrual to Reverse
Find the original journal entry.
2. Identify Reversal Date
In this case, June 30 will be the accrual date for July 1, 2025. On the first day of the subsequent month, a reversal entry is made. This makes this accrual only affect the required period.
3. Enter the Reversal Journal entry
- Go to + New >Journal Entry.
- Date: It is fixed on the first day of a new month.
- Description: Make the full description of accrued amount read clearly, in words (i.e., Reversal of Accrued June Rent).
- Reverse Debits-Credits: In case the entry causing Account A to be debited but Account B to be credited then the reversal will be Account A as credit and Account B as debit to the same extent.
- Save, close.
Types of Month End Accruals Common to Most Companies
It is useful to understand the typical forms of accruals so as to determine them in your business:
1. Accrued Expenses
- Accrued Salaries/Wages: Salaries taken by employees but still not paid at the end of the month.
- Accrued Utilities: Services obtained on utility and no bill has been received yet.
- Accrued Rent: The current month rent expense which is not yet paid or invoiced.
- Accrued Interest Expense: The interest paid on the loans but no payment has taken place.
- Accrued Professional Fees: Services provided by the lawyers, accountants or the consultants but not yet billed.
2. Accrued Revenues
- Accrued Service Revenue: It is the services that a client has received but no invoice has been issued.
- Accrued Interest Income: This is an interest taken on investments or borrowed money awaiting collection.
- Income collected as subscriptions which extend over more than one accounting period when all the subscription has not been realized.
Guidelines to Finding Month-End Accruals
The accruing entails a careful methodology and the knowledge of all your business activities:
Review Prior Month’s Accruals
Begin by considering what you accumulated during last month. A lot of accruals are periodical (e.g., rent, pays).
Examine Vendor Bills
Find out risks, services, or goods acquired in the month yet you have not been issued with a statement.
Check Customer Contracts
To determine long term projects or service contracts, where revenue may be obtained over a period of time and current invoicing on an alternating basis.
Bank Statements Analysis
Seek recurring payments not of mate to an expense (e.g. subscriptions, loan payments). This could either mean an overlooked cost or a pre-paid entry.
Talk to Heads of Department
Talk to your sales, operations and HR groups to learn about the things they are doing that could create unbilled revenues, or unrecorded expenses.
- Sales/Project Managers: Inquire about a list of projects or services where invoices have been done.
- Hr/Payroll: ascertain whether it has any arrears in its payroll.
- Operations/Purchasing: Ask whether there are goods or services, which have been received but not yet charged.
Apply Purchase Orders (POs) and Sales Orders (SOs)
Verify the things received in POs that haven’t been invoiced when applying POs. Likewise, in the case of SOs, identify services that have already been provided, but the charges have not been raised against SOs.
Take up Cut-off Procedures
All transactions carried out last month must be entered in the month-end ledger. Transactions of the next month are prohibited from being recorded. This is usually a review of the remaining days of the month activity and the first days of the following month activity.
Significance of Reversal of Accruals
Reverse accruals may appear to be a trivial procedure that needs to be completed, but there are a few things in it, which are absolutely essential to be accomplished:
Preventing Double-Counting
Unless it is reversed, an actual invoice of an actual expense accrued (or payment of an accrued revenue) would be recorded in the new month, and thereby effectively counted two times – once as an accrued expense (or once as an actual expense), and once as the actual expense (or once as an actual revenue). This improves costs or sales.
Maintaining Account Accuracy
Reversal makes your balance sheet accounts (such as Accrued Expenses or Accrued Revenue) zeroed off or correctly represent the accruals of the current period only. This avoids them accumulating endlessly on accruals made on the previous period.
Simplifying Reconciliation
In cases where the actual transaction takes place, there is no requirement to make any adjustment to accommodate the accrual in the previous month and the reconciliation becomes an easy task.
Clarity in Reporting
Reversals also make financial statements of the current month understandable and devoid of carryover effects of adjustments done in the previous periods.
QuickBooks Online Accruals Automation
Although QuickBooks Online does not contain a specific accrual automation as it does on recurring invoices, you can use the existing features to automate it:
Recurring Journal Entries
That is as close to automation of accruals as you can come. In case of predictable, recurring accruals (such as a rent or certain salaries) a recurring journal entry can be established:
- Click to Go Gear Icon > Recurring Transactions.
- Select New.
- Choose Journal Entry as the type of transaction.
- Type the setting to “Scheduled.”
- Set the Interval (i.e. monthly) and Start Date (i.e. reversing accruals on the first day of the following month and accruals on the last day of the current month).
- Enter debit and credit accounts information and amount.
Tip: You would normally create two recurring journal entries to each accrual; one being the accrual (dated month-end) and the reversal (dated first of the following month). This has to be nurtured with attention to naming and management.
Memorized Transactions (Desktop Only)
Although QBO has no clear function to memorize any transaction like QuickBooks Desktop, we can have recurring transactions making a similar purpose to journal entries.
Third-Party Integrations
In case of highly complex accrual or business with high volume it may be helpful to investigate third-party apps that are integrated with QuickBooks Online to enable advanced accrual functionality. Look for apps that can help automate your recognition, expense, and general ledger needs.
Standard Operating Procedures (SOPs)
Although automation is not fully possible, proper definition of SOPs on identification of accruals, recording and reversal can make this drastically simpler and error-free to a greater extent. This shall involve preparation of a checklist of the common accruals to be checked out every month.
How to Configure Accrual Accounting in QuickBooks Online
QuickBooks Online does not have a problem designing both cash and accrual accounts. To make sure that you are making a good use of its accrual capabilities:
Default Reporting Basis
- Click Reports at the left navigation bar.
- Most reports (such as Profit & Loss, Balance Sheet) will have a Reporting basis dropdown displaying at the very top. Be sure this is set to Accrual in looking at your statements. Although you can switch between Cash and Accrual in reporting, all the transaction recording should be conducive of accrual reporting.
Chart of Accounts
To maintain your Chart of Accounts, have the correct liability accounts on accrued expenses (e.g. Accrued Expenses, Accrued Wages Payable) and have the correct asset accounts on accrued revenues (e.g. Accrued Revenue, Accounts Receivable). These accounts may not exist whereby you might require to create them.
- Tool bar > Chart of Accounts.
- Click New to create new accounts.
- If you are dealing with accrued expenses, select Other Current Liabilities under Account Type.
- In case of Accrued Revenue, go ahead and select Account Type as Other Current Assets.
Understand Transaction Flow
- Invoices: Creating a bill in QBO will make it automatically recognize revenue on an accrual basis making Accounts Receivable and Revenue to increase, regardless of whether the invoice is received or not.
- Bills: As you enter a bill of a vendor, QBO debits the expense of the Accounts Payable with the accrued expense and the Expense account the bill relates to, without, at that point, trying to distinguish whether the expense might be paid or not.
- Expense Transactions: Suppose an item expense recorded directly that is, via the expense, or via the check form is not affecting an expense account during the moment-of-recording.
What are Accrual Accounting and Cash Accounting?
It is a basic difference in accounting which justifies the necessity of accruals.
Cash Accounting:
- When income is received in the form of cash, it is recognized.
- When Recognition of Expenses Are Made: They are made when cash is paid.
- Simplicity: It is easier to handle particularly, small businesses that have simple transactions.
- Financial Picture: does not always give a fair picture of the actual performance over a period, since it does not take any note of un-billed revenues or unpaid expenses.
- Appropriate To: Sole proprietorships, very small companies that do not hold inventory or experience complicated liabilities and do not need an outside preparation of financial reporting.
Accrual Accounting:
- When Revenue is recognized: When it is earned in the case that it does not matter when you receive cash, it may be when a service is undertaken or when goods are delivered.
- When Expenses are recognized: When incurred, whether or not cash has been paid. (E.g. the electricity when you use it even before you get the bill).
- Accuracy: This gives a fuller and better idea of the financial standing and performance of a business.
- Matching Principle: Follows the matching principle and matches the expenses with revenues they are generating.
- Appropriateness: Needed by majority of larger commercial concerns, listed businesses, businesses that carry stocks, and those borrowing capital or are hoping to do so. The reason for this is generally recognized accounting principles, or GAAP.
What to do when you Move to Accrual Method from Cash?
The change of accounting system to accrual accounting can be a major investment undertaking especially when an established business is involved. The main steps are shown here:
1. Consult with an Accountant
It is the most important initial step. A qualified accountant will direct you through this process and be able to tell you how this will affect your business as well as help you deal with tax effects associated with the same.
2. Understand the Implications
This will have different financial statements. Depending upon your unbilled revenues and unpaid expenses, the profits may seem to be more or less at the first month.
Your taxable income can be affected by the change. In the US, you may be required to send the IRS Form 3115 (Application for Change in Accounting Method).
Be sure your accounting software (QuickBooks Online) is set up properly in accrual.
3. Open Your Books for Review
Determine all the remaining invoices or receivable of pre-transition services already provided service/delivery of goods (not already registered under the cash items). These are your beginning Balances on Current Accounts Receivable.
List all unpaid or overdue bills or sums due on account of services /goods received before the transition date and which were not paid or transferred under cash. These are your opening Balance Accounts Payable.
- Gained Expenses or Income
Seek out costs and incomes that took place before the transition that had not yet been billed or received.
- Prepaid Expenses/Unearned Revenue
Keep an eye out for any items that have been paid for in advance but will be finished later, services that have not yet been rendered (prepaid expenses), or earned fronts on goods or services that are probably going to be rendered but have not yet been transferred into ownership (unearned revenue).
4. Create Opening Balances (Journal Entries)
Journal entries Let QuickBooks Online use the appropriate balances on the transition date of the Accounts Receivable, Accounts Payable and any other accrual/deferral accounts. This will comprise an important adjusting entries.
5. Adjust Internal Processes:
- Invoicing: Make sure that the invoices are invoiced in right time and in right way.
- Bill Entry: It should have a system to immediately enter bills in respect of all the vendors though payment is not immediately made.
- Month-End Close: Put in place a strict procedure of the month-end close that will include the determination and recording appropriate accrual and deferrals.
6. Train Your Team
Train any member concerned with keeping financial records on the new accounting procedure and the necessity of prompt and correct data that should be input.
7. Run Comparative Reports
During the first couple of months following transition, run both accrual basis and cash basis reports to know the differences and observe the effect.
8. Regular Reconciliation
Have all entries on balance sheet reconciled periodically to make them accurate.
Conclusion
An effective implementation and managing of the month-end accruals in QuickBooks Online serves to further ensure businesses are accurate in their financial reporting and remain in compliance with the accounting standards as well as makes decisions based on a more realistic current representation of their company finances. Be it manual or automation tool based work, once you have learned to do it well, this process can ensure the financial well-being of any organization.
Month-End Accruals in QuickBooks Online Faqs
1. What is the Accrual Accounting method of Recording Expenses?
Under accrual accounting, expenses are worked on accruing rather than paying. This implies that you have to enter the cost in an account payable or expense account, and record the payment a later time when payment is made.
2. What is the General Principle of Accrual Accounting?
The simple principle of accrual accounting is to post revenues and expenses at the time they are earned or incurred irrespective of the time the cash is received or paid.
3. What is the Process of Accruing Expenses in QuickBooks?
To accrue expenses in QuickBooks, one should navigate through the Company menu and use the option of; Make Journal Entries. Select the correct account which the expense is expensed to and credit (the one into which it is credited) and enter the amount, and date. The journal entry will be saved and the expense will be accrued.
4. What is the process of Entering the Accrued Salaries in QuickBooks?
The amounts of the accrued salaries would be recorded in QuickBooks by creating a journal entry that debit your Salary Expense account and credit your Accrued Salaries liability account in the amount of the accrued salary.
5. Who Applies Accrual Accounting?
The main use of accrual accounting is that businesses and entities utilize it to paint a better view of them concerning their financial stands and their financial performance within a specific time. So it is used to keep track of transactions of larger companies, and of one with complex transactions or long term contracts.
