Accrual

From Wikipedia, the free encyclopedia

Jump to: navigation, search

Accountancy

Key concepts

Accountant · Accounting period · Accrual ·

Bookkeeping · Cash and accrual basis · Cash flow
forecasting · Chart of accounts · Convergence · Journal ·
Special journals · Constant item purchasing power
accounting · Cost of goods sold · Credit terms · Debits and
credits · Double-entry system · Mark-to-market
accounting · FIFO and LIFO · GAAP / IFRS · General
ledger · Goodwill · Historical cost · Matching principle ·
Revenue recognition · Trial balance

Fields of accounting

Cost · Financial · Forensic · Fund · Management · Tax

(U.S.)

Financial statements

Balance Sheet · Cash flow statement · Income statement ·

Statement of retained earnings · Notes · Management
discussion and analysis · XBRL

Auditing

Auditor's report · Control self-assessment · Financial

audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act
 Accounting qualifications

CA · CPA · CCA · CGA · CMA · CAT · CIIA · IIA · CTP

 v
 t
 e

Accrual (accumulation) of something is, in finance, the adding together of interest or different
investments over a period of time. It holds specific meanings in accounting, where it can refer to
accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-
based accounting. These types of accounts include, among others, accounts payable, accounts
receivable, goodwill, deferred tax liability and future interest expense.[1]

For example, a company delivers a product to a customer who will pay for it 30 days later in the
next fiscal year, which starts a week after the delivery. The company recognizes the proceeds as
a revenue in its current income statement still for the fiscal year of the delivery, even though it
will get paid in cash during the following accounting period.[2] The proceeds are also an accrued
income (asset) on the balance sheet for the delivery fiscal year, but not for the next fiscal year
when cash is received.

Similarly, a salesperson, who sold the product, earned a commission at the moment of sale (or
delivery). The company will recognize the commission as an expense in its current income
statement, even though s-/he will actually get paid at the end of the following week in the next
accounting period. The commission is also an accrued expense (liability) on the balance sheet for
the delivery period, but not for the next period the commission (cash) is paid out to her/him.

Contents
 1 Accrued expenses and accrued revenues
 2 Accruals in payroll
o 2.1 Length of service
o 2.2 Trial period
o 2.3 Rollover/carry over
 3 Other uses
 4 See also
 5 References
 6 External links

Accrued expenses and accrued revenues

The term accrual is also often used as an abbreviation for the terms accrued expense and
accrued revenue that share the common name word, but they have the opposite economic /
accounting characteristics.

 Accrued revenue: Revenue is recognized before cash is received.

 Accrued expense: Expense is recognized before cash is paid out.

Accrued revenue (or accrued assets) is an asset, such as unpaid proceeds from a delivery of
goods or services, when such income is earned and a related revenue item is recognized, while
cash is to be received in a latter period, when the amount is deducted from accrued revenues.

In the rental industry, there are specialized revenue accruals for rental income which crosses
month end boundaries. These are normally utilized by rental companies who charge in arrears,
based on an anniversary of a contract date. For example a rental contract which began on 15
January, being invoiced on a recurring monthly basis will not generate its first invoice until 14
February. Therefore at the end of the January financial period an accrual must be raised for 16
days worth of the monthly charge. This may be a simple pro-rata basis (e.g. 16/31 of the monthly
charge) or may be more complex if only week days are being charged or a standardized month is
being used (e.g. 28 days, 30 days etc.).

Accrued expense is a liability with an uncertain timing or amount, the reason being no invoice
has been received yet.[3] The uncertainty of the accrued expense is not significant enough to
qualify it as a provision. An example of an accrued expense is a pending obligation to pay for
goods or services received from a counterpart, while cash is to be paid out in a latter accounting
period when the amount is deducted from accrued expenses.

In the United States of America, this difference is best summarized by IAS 37 which states:

"11 Provisions can be distinguished from other liabilities such as trade payables and accruals
because there is uncertainty about the timing or amount of the future expenditure required in
settlement. By contrast:

"(a) trade payables are liabilities to pay for goods or services that have been received or supplied
and have been invoiced or formally agreed with the supplier; and

"(b) accruals are liabilities to pay for goods or services that have been received or supplied but
have not been paid, invoiced or formally agreed with the supplier, including amounts due to
employees (for example, amounts relating to accrued vacation pay). Although it is sometimes
necessary to estimate the amount or timing of accruals, the uncertainty is generally much less
than for provisions.

"Accruals are often reported as part of trade and other payables, whereas provisions are reported
separately."

To add to the confusion, some legalistic accounting systems take a simplistic view of “’accrued
revenue”’ and “’accrued expenses”’, defining each as revenue / expense that has not been
formally invoiced. This is primarily due to tax considerations, since the act of issuing an invoice
creates, in some countries, taxable revenue, even if the customer does not ultimately pay and the
related receivable becomes uncollectable.

Accruals in payroll
In payroll, a common benefit that an employer will provide for employees is a vacation or sick
accrual. This means that as time passes, an employee accumulates additional sick or vacation
time and this time is placed into a bank. Once the time is accumulated, the employer or the
employer's payroll provider will track the amount of time used for sick or vacation.

Length of service

For most employers, a time-off policy is published and followed with regard to benefit accruals.
These guidelines ensure that all employees are treated fairly with regard to the distribution and
use of sick and vacation time.

Within these guidelines, the rate at which the employee will accumulate the vacation or sick time
is often determined by length of service (the amount of time the employee has worked for the
employers).

Trial period

In many cases, these guidelines indicate there is a trial period (usually 30 to 90 days) where no
time is awarded to the employee. This does not prevent an employee from calling in sick
immediately after being hired, but it does mean that they will not get paid for this time off.
However it does prevent an employee for example, scheduling a vacation for the second week of
work. After this trial period, the award of time may begin or it may be retroactive, back to the
date of hire.

Rollover/carry over

Some accrual policies have the ability to carry over or roll over some or all unused time that has
been accrued into the next year. If the accrual policy does not have any type of rollover, any
accrued time that is in the bank is usually lost at the end of the employer's calendar year.

Other uses
When referring to clinical trials, the definition of "accrual" is either the process of recruiting
patients into a trial, or the number of patients in a trial. [4]

See also
 Accrued income
  Accrued interest
 Accrued jurisdiction
 Accrued liabilities
 Revenue recognition
 Matching principle
 Accrual basis accounting
 Deferrals in accounting

References

Accrued interest
From Wikipedia, the free encyclopedia
(Redirected from Accrued income)
Jump to: navigation, search
This article may require cleanup to meet Wikipedia's quality standards. No cleanup
reason specified. Please add a |reason= parameter to this template. Please help
improve this article if you can. The talk page may contain suggestions. (July 2007)
This article needs additional citations for verification. Please help improve this article
by adding citations to reliable sources. Unsourced material may be challenged and
removed. (July 2007)

In finance, accrued Interest is the interest that has accumulated since the principal investment,
or since the previous interest payment if there has been one already. For a financial instrument
such as a bond, interest is calculated and paid in set intervals. Accrued income is an income
which has been accumulated or accrued irrespective to actual Receipt, which means event
occurred but cash not yet received.

Formula
The primary formula for calculating the interest accrued in a given period is:

where is the accrued interest, is the fraction of the year, is the principal, and is the
annualized interest rate.

is calculated as follows:

where is the number of days in the period, and is the number of days in the year.
The main variables that affect the calculation are the period between interest payments and the
day count convention used to determine the fraction of year, and the date rolling convention in
use.

A compounding instrument adds the previously accrued interest to the principal each period,
applying compound interest.

Date rolling
From Wikipedia, the free encyclopedia
Jump to: navigation, search

In finance, date rolling occurs when a payment day or date used to calculate accrued interest
falls on a holiday, according to a given business calendar. In this case the date is moved forward
or backward in time such that it falls in a business day, according with the same business
calendar.

The choice of the date rolling rule is conventional. Conventional rules used in finance are:

 Actual: paid on the actual day, even if it is a non-business day.

 Following business day: the payment date is rolled to the next business day.
 Modified following business day: the payment date is rolled to the next business day,
unless doing so would cause the payment to be in the next calendar month, in which case
the payment date is rolled to the previous business day. Many institutions have month-
end accounting procedures that necessitate this.
 Previous business day: the payment date is rolled to the previous business day.
 Modified previous business day: the payment date is rolled to the previous business day,
unless doing so would cause the payment to be in the previous calendar month, in which
case the payment date is rolled to the next business day. Many institutions have month-
end accounting procedures that necessitate this.

Date rolling is particularly important for over-the-counter derivatives, whose payment and end
dates may potentially fall on any date. For standardized derivatives, in order to avoid problems
with month ends, the payment and termination dates are generally chosen to fall in the middle of
the month, as in the IMM dates on futures and options contracts, and the similar dates on
standardized credit default swaps.

Our updated Terms of Use will become effective on May 25, 2012. Find out more.

Accrued jurisdiction
From Wikipedia, the free encyclopedia
Jump to: navigation, search
 This article needs additional citations for verification. Please help improve this article
by adding citations to reliable sources. Unsourced material may be challenged and
removed. (September 2007)

Accrued jurisdiction within the context of the Australian legal system is the power held over
state matters by federal courts. Accrued jurisdiction will occur when there are several cases
brought to the Federal Court of Australia (FCA) where there are competing jurisdictions between
them. In essence the state vests judicial authority in the federal court providing that a number of
requirements are met. A claim that is based on a state law for example can be heard in a federal
court depending on:

1. the actions done by respective parties

2. the relationship between the parties
3. the laws which attach rights or liabilities to the conduct and relationship of parties
4. whether the different claims arise under the same subject matter
5. whether the different claims are so related that the determination of one depends on the
other

The above test is applied by the court and a decision reached as to whether the court has accrued
jurisdiction. A convenient example of this process is outlined in the case Re Wakim; Ex parte
McNally (1999) HCA where there is a conflict between state and federal jurisdictions. In this
particular case it was held that accrued jurisdiction did exist but had it not the FCA would have
been acting unconstitutionally had it proceeded hearing the case.

Accrued liabilities
From Wikipedia, the free encyclopedia
Jump to: navigation, search
This article does not cite any references or sources. Please help improve this article by
adding citations to reliable sources. Unsourced material may be challenged and
removed. (December 2009)

Accrued liabilities are liabilities which have occurred, but have not been paid or logged under
accounts payable during an accounting period; in other words, obligations for goods and services
provided to a company for which invoices have not yet been received. Examples would include
accrued wages payable, accrued sales tax payable, and accrued rent payable.

There are two general types of Accrued Liabilities:

 Routine and recurring

 Infrequent or non-routine

Example: Accrued Wages Payable

Most companies pay their employees on a predetermined schedule. Let's say that the "Imaginary
company Ltd." pays its employees each Friday for the hours worked that week.

Because wages are accrued for an entire week before they are paid, wages paid on Friday June 5
are compensation for the week ended June 5. If the total wages for the 4 Fridays in June are
$1000.00 ($250.00 per week or $50.00 per day) "Imaginary company Ltd." makes routine entries
for wage payments at the end of each week. As the company pays wages it increases 'Wage
Expense' and decreases 'Cash'. In this example "Imaginary company Ltd." would pay wages on
the 5th, 12th, 19th, and 26 June. Assuming that the company prepares Financial statements each
month, they owe an additional $100.00 in wages for the last two workdays in June (29th & 30th).
The company will not pay these wages until Friday the 3rd of July; to make sure the company's
report remains correct an adjustment must be made.

Wage Expense $1000.00

Cash $1000.00
Wage Expense $100.00
Accrued Wages Payable $100.00

If the company does not record the 2nd transaction, both Expenses and Liabilities are
understated. This will make the company's Income appear higher than it really is, which can have
very serious consequences.

Accrued liabilities is the direct opposite of prepaid expense. See Matching principle.