Introduction

Cost Accruals are adjustments to the period values which automatically reverse in the next period and are generally used to recognise expenses that have been incurred but have not yet been invoiced. Examples include:

• Contractor Work in Progress like services rendered but not yet billed by the Supplier where you expect to pay at a later stage. 
• Goods received but not yet invoiced, like goods dispatched or partial deliveries.
• Utility costs invoiced bi-monthly in arrears.
• Insurance where the Supplier typically bills for two or three months in arrears and whose Invoice might not appear until month four. 
• Interest owed.
• Expenses not yet paid.

Post Accruals to the period in which the goods or services were incurred, so accounts reflect revenue earned in that period and the expenses incurred in generating that revenue. In some cases, this situation might extend over several periods. Doing so automatically creates a Reversing Journal on the first day of the next period. 

Cost Accruals Journal entries

When setting up an Accrual you should treat it as if the Supplier Invoice were present. You can accrue these expected costs by:

• Crediting this total to a nominated Cost Accrual (System) Account in the Balance Sheet for the period/s you receive the goods or services.
• Debiting the estimated costs to each of the relevant General Ledger Expense Accounts.

The amount will be a best estimate of the cost that you would have posted if you had processed the Supplier Invoice in that period. Expense Account and Cost Centre will also be best estimates. 

Supplier Invoice processing

When the Supplier Invoice arrives, post it, letting it be matched with any previous accrual postings. These previous accruals are Reversed. This involves creating credit journals and posting them against the current period of the Invoice. 

If both entries correspond fully: 

• The costs will post to the P & L in the correct period.
• The Invoice Totals will post to the Creditors Control Account in its proper period. 
• A contra entry will post to the Balance Sheet Accrual Account to clear it out.

Complications can arise if:

• The posted Accrual amounts differ from the Supplier Invoice amounts
• The Expense and/or Cost Centre Postings differ from each other. 

For example, if the Supplier Invoice Posting Amount is greater than the Accrued Amount, then you will have to adjust the Reversal Accruals to ensure that the correct costs enter the P & L in the correct period. However, the result will be an under-accrual balance in the Accrual Balance Sheet Account. 

See:

How do I Setup and Maintain General Ledger Accounts?‍ 

General Ledger Journals‍

Cost Accruals - Part 1 (7.4) - AIQ Academy

Cost Accruals - Part 2 (7.5) - AIQ Academy 

Accrual System Accounts

You can set up multiple Balance Sheet Accrual (System) Accounts in your General Ledger to differentiate between different accounts. This will help with subsequent Balance Sheet query and analysis reporting.
 

For example, you can set up Accrual Accounts for:

• Different Utilities (some Utilities might bill Quarterly while others bill bi-Monthly).
• Contractor or Supplier Work in Progress.
• Interest owed.

Step One: Set up Balance Sheet Accrual Accounts

Setting up an accrual account follows the same steps as a standard General Ledger Account, with any exceptions detailed below.

See: 

How do I Setup and Maintain General Ledger Accounts?‍ 

Adding a Group Code

If you assign a Group Code to the Account, then you will be able to query them in the Grid. You can customise the grid and add the GL Group column if it is not there by clicking Add/Remove Columns.

In the example below ACC represents Cost Accruals:


 

Step Two: Nominate the Accrual Accounts as System Accounts

1. Go to Setup > Codes Maintenance > System Accounts.
   
   
    
2. Click Add New System Account to open the System Accounts screen.
   
   
    
3. In the Account Type dropdown, select Cost Accrual Account. 
4. In the Linked GL Account dropdown, select the associated Balance Sheet Account that you set up to manage these accruals.
5. Click Save.

Cost Accrual Journal Entry

1. Go to General > GL Journal Manager.
2. Select Cost Accrual from the dropdown to open the Cost Accrual Journal Entry screen.
   
   
   
   
    
3. In the header, complete the following as relevant: 
   • Cost Accrual A/C: This is the Balance Sheet Accrual Account which will hold the credited Accrued Amount until a reversal occurs.
   • Description: Enter a meaningful description of the transaction, such as "Accrued Interest for April 2018". 
   • Default Description in each line: Check if you want Line Description to inherit this text.
   • Journal Reference: Enter a Journal Code or Number to distinguish this Journal from other transactions.
   • Date: This is important as it determines the Start Period in which the Accrual journal will be posted.
   • Manual Reversal: This lets you manually reverse this accrual from the journal management screen. This will auto create a reversing entry for the accrual in the current period.
   • Watch This Supplier A/C For Suggested Reversal: Instead of choosing to auto reverse, you can watch a supplier account for potential invoice matches against this accrual and then used to reverse it via the Journals Management screen. When the Invoice arrives in this Supplier Account, the system labels possible matching invoices for a reversal.
   • Auto Reverse at Start of Next Period: You can use this method of Accrual Reversal rather than matching against a Supplier Invoice, for example, for "Work in Progress" type Accruals, and regular accruals where you fully expect the Invoice to appear in the next period.
   • Configure the Accrual to Recur over Multiple Periods: You can set the Accrual to span multiple financial periods, for example, if you have a quarterly bill. However, if you have set the accrual to auto-reverse in the next period, this option will not be available. 
   • Until: Choose to make this journal recurring by either creating a draft journal each time it recurs or auto posting it. Decide whether the journal can recur over a set number of periods and indicate whether it should continue up to a certain date or indefinitely.
   • Every:  Set the recurrence frequency of the accrual journal after the Period specified by the Accrual Date. For example, enter one if the accrual should repeat every period up to the end period, or enter three if it should repeat every three periods up to the end date.
4. In the grid, complete the following:
   • GL Account: This is the General Ledger (posting) Accounts(s) that you will post the Accruals to.
   • BI Code: Enter the relevant BI Code associated with this Accrual journal for reporting purposes
   • Line Description: Enter or Overwrite the Description of the Accrual.
   • DR Amount: The debit amount of the journal. 
   • Export to Excel: Click if you wish to retain a permanent copy of the journal in Excel.
5. Click Process to post the accrual journal. You will receive a confirmation message regarding the accrual posting period and be asked for confirmation. 

Reviewing and Amending Cost Accruals

Go to General > Cost Accrual Manager. 
 

The Cost Accruals Manager grid lists all Cost Accruals awaiting reversal for a selected financial period, allowing you to manage them on a period-by-period basis. The grid shows all Cost Accruals awaiting reversal as you need to manage them. 

The grid displays the following details:

• Total Accrual to Period: The overall amount accrued for the selected period.
• Total Reversed to Posted: The total reversed for the selected period.
• Remainder to Reverse: The amount that remains to be reversed up to the end period of the accrual. 
• Reverse Against Invoice: A 'Yes' label if any invoices posted in the selected period against GL accounts match any outstanding accruals.
• Reference: The grid displays a single Transaction ID for each accrual. It can span over multiple periods. Click this link to open the Transaction Browser. In the Transaction Browser, you can further drill down or edit by clicking the pencil icon. If you change the GL Account code, this will update all the lines in the journal. 
  
  
  

Reversing Accruals

There are two ways to reverse Accruals.

Method One: Auto Reversing

When you process the Accrual, it will generate:

• The Accruals for the relevant period.
• Cancelling Accruals in the next most immediate period. 

This method is mostly for Work in Progress which you will re-estimate at the end of the period.

Method Two: Manual Reversing 

1. Go to General > Cost Accruals Manager and find the relevant accrual.
2. In the Actions dropdown, select Reverse to open the Reverse Accrual screen. 
3. The Reverse Accrualscreen displays the full details of the accrual to the current period, including:
   • The total amount already reversed.
   • The remainder to reverse, split by GL/BI code(s).
   • The period the reversal will be posted in.
   • Details of all matching invoices, including period dates and BI Codes.
     
     
     
     
     
      
4. Decide how much of the accrual you can reverse in this period. The invoice amount may match exactly the amount accrued for. In other cases, where the invoice is only a partial charge, you can carry some remaining value of the accrual into future periods if you expect to be invoiced for the remaining. Enter an amount in the Reversal Amount column against each line of the accrual.
5. Click Process to post a reversing journal that reverses the value of the accrual to that period date. The reversing journal will be posted in the period selected.

Example

In this case, we accrued an audit expense fee of £2,300 to Nov 2020 across two BI Codes (Finance-London and Finance-Dublin). 
 

The system found an invoice for £1,000 posted in Nov 2020 to the same Supplier A/C as the accrual and GL Code (80020 - Audit Expenses) and BI Code Finance-London as part of the original accrual. 
 

We can now set the value of this invoice (£1,000) off against the amount accrued (£1,300) using the GL-BI Code combination. 
 

When we receive the final invoice for the Audit Fee, we can reverse it against the remaining £1,530 of the accrual.