Accrued expenses
Used, not yet billed
Costs such as contractor work, utilities or professional fees that belong to the month but haven't been invoiced yet.
Automation · Keeping the books
How the accrual system of accounting puts each cost in the right month.
Excello keeps the accrual system of accounting running in your books: accrued expenses, prepaid expenses and depreciation are recorded inside your own QuickBooks, Xero or Odoo at every month-end close and reviewed by accountants.
Prefer the cash basis? Excello keeps your books on whichever basis your business needs.
Each month shows what it really earned and spent.
- Accruals
- Recorded every close
- Reviewed before sign-off
- Basis your choice
- Closed within five business days
What is the accrual system of accounting?
The idea
Accrual basis compared with cash basis
Side by side
| What matters | Cash basis | Accrual basis |
|---|---|---|
| When income is recorded | When the customer pays | When the sale is made |
| When expenses are recorded | When the bill is paid | When the cost is incurred |
| Unpaid bills and invoices | Absent from the books until paid | Shown as payables and receivables |
| What the monthly profit shows | Money in minus money out | What the month earned minus what it cost |
| Often chosen by | Very small, simple businesses | Businesses with investors, lenders, inventory or larger contracts |
Excello keeps books on either basis. Tax rules on which basis a business may use vary by country, so check the tax side with your tax adviser.
The accruals Excello records at every close
The entries
Prepaid expenses
Paid ahead, spread out
Annual software subscriptions, insurance and deposits, recorded as an asset and spread across the months they cover.
Depreciation
Equipment, year by year
The cost of laptops, machinery and other fixed assets spread across the years the business uses them.
A worked example: one annual payment, twelve monthly costs
The arithmetic
| Month | Expense recorded | Prepaid balance left |
|---|---|---|
| January | $1,000 | $11,000 |
| February | $1,000 | $10,000 |
| March | $1,000 | $9,000 |
| Through December | $1,000 each month | $0 |
How Excello runs accruals for you
Four steps
-
Step 01
Set up
During onboarding, the accrual schedules your business needs are set up for recurring costs, prepayments and assets.
-
Step 02
Calculated
As each month ends, accountants calculate the accruals and prepaid amounts that belong to it.
-
Step 03
Posted
The entries are posted in your QuickBooks, Xero or Odoo as part of the month-end close.
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Step 04
Signed off
Each entry is reviewed, and a qualified accountant signs off the close within five business days as standard.
Why accrual books matter as a business grows
The reasons
Frequently asked questions
What is the accrual system of accounting?
The accrual system of accounting records income when it is earned and expenses when they are incurred, whenever the cash actually moves. It shows what a business earned and spent in each month, which is why investors and lenders expect it.
What is the difference between accrual and cash accounting?
Cash accounting records a transaction when money enters or leaves the bank. Accrual accounting records it when the sale is made or the cost is incurred, so bills not yet paid and invoices not yet collected still appear in the right month.
Does Excello keep books on the accrual or cash basis?
Either, depending on what your business needs. Excello keeps your books on the basis you choose, and many businesses with investors or lenders choose accrual so the monthly profit and loss reflects the work actually done.
Which accruals does Excello record?
Accrued expenses for costs incurred but not yet billed, prepaid expenses spread across the months they cover, and depreciation on fixed assets. Each is recorded at the month-end close and reviewed by a qualified accountant before sign-off.
Can a business switch from cash to accrual accounting?
Yes. Switching means recording opening receivables, payables and prepaid balances, then keeping the books on accrual from that date. Tax rules on changing basis vary by country, so confirm the tax side with your tax adviser first.
Is accrual accounting required?
Not for every business. Financial statements prepared under GAAP or IFRS use the accrual basis, so investors, lenders and auditors usually expect it, while the basis a small business may use for tax depends on local rules.