Accrued Income

Accruals for Contract Income - Reversing Accruals

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Hi, apologies that my knowledge on this one is a little sparce:

Checking over some erroneous transactions made by somebody else but want to check my own understanding first:

 

Question 1 (Accrued Income):

Quarterly Accounts prepared and accrual made in the quarter where client not invoiced - ok with this.

At what point would that accrual be reversed, the first day of the first month in the following quarter?

 

Question 2 (Accrued Income): 

Quarterly accounts prepared and accrual made, client invoiced and accrual not reversed. 

Of course I need to fix this - presuming it's at the point that the client is invoiced that the accrual should be reversed out?

 

 

 

 

Replies (10)

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By johngroganjga
19th Mar 2024 12:19

Yes you reverse the accrual when the invoice is raised - otherwise you would be recognising the same income twice wouldn't you?

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Replying to johngroganjga:
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By oracle9
19th Mar 2024 12:36

Yes - my logic exactly, thank you.

How about question one, where the client not yet invoiced.

When is this reversed out, first day of the next quarter?

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Replying to oracle9:
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By Anonymous Accountant
19th Mar 2024 12:58

I don't understand why you would reverse an accrual if the client has yet to be invoiced.

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By DJKL
19th Mar 2024 13:15

Possibly because if accrual is calculated based on myriad jobs/invoices to be raised it gets messy reversing part of such an accrual in a piecemeal fashion as each individual invoice is post month end created, can lose yourself re what makes up resultant, I would often tend to reverse all on 1st of month then recalculate in total again at each subsequent month/quarter end and enter total anew, then rinse/repeat.

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Replying to DJKL:
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By DKB-Sheffield
19th Mar 2024 13:27

Exactly what I used to do.

- Full list of accruals at PE
- Enter all into software
- Reverse all on 01/MM
- Update list as accruals realised
- Revise list at PE+1
- Repost all accruals at PE

Same for expenses... same for prepaid income & expenses.

That was just my procedure and was how I was trained. Much easier now with spreadsheets, software, and auto-reversing journals mind!

It may seem pointless, but a clean sheet at 01/MM is better than a balance sheet with 'missed 'reversals spanning many years!

However, in answer to the OP's Q1... regardless of whether the accrual is reversed and reposted, or retained until 'false'... it is only truly dropped when it is no longer required (i.e. date of invoice, or date it is no longer relevant).

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Replying to DKB-Sheffield:
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By oracle9
19th Mar 2024 14:17

This is exactly how I was shown too - albeit many moons ago :D

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Replying to DJKL:
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By oracle9
19th Mar 2024 14:16

Exactly this!!

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By oracle9
19th Mar 2024 14:21

So fair to say there's no right or wrong in terms of the reversals and the start of the month?

The risk of missed reversals seems to point me in the direction of sticking with the reversals at the start of the month & re-calculating, good practice so to speak

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By DJKL
19th Mar 2024 14:32

Certainly if a lot of component parts to the calc, of course what then is lost is real time accounts within reporting periods, however I have never believed the guff the software companies spiel out, accounts imho being only as good as the period end adjustments (if significant).

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By tom123
19th Mar 2024 15:55

I came into my current job, with a large gap from my predecessor. He posted all sorts of journals to reverse on the first day of the new month.

Net result, opening balance on new month contained virtually nothing to follow on from.

Personally, I like the opposite way - where you have a schedule of all the typical things you accrue for, and adjust as required each month.

I guess it depends how your software works - whether you can easily construct and import a journal from spreadsheet data etc.

Whichever way you work it is vital you keep supporting documents to match with each line in your TB - unless your software is actually clever enough to manage this itself.

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