An accounts payable accrual records what a business has received but not yet been invoiced for, so that the cost lands in the period it belongs to rather than the period the paperwork happens to arrive. It is the entry that most often gets missed, and consequently the entry audits go looking for first, because understating liabilities is the easy error and the tempting one. Making accruals well is less about the mechanics, which are trivial, than about knowing what was received before the cut-off, which is a payables question rather than an accounting one. This page is what the accrual records, how to estimate it, and why the two are connected.
What it records, and why it exists
Goods or services received before the cut-off with no invoice yet. The expense belongs in the period because the benefit was received in it. Without the accrual the period looks cheaper than it was, and the next one looks dearer, which is exactly the distortion the matching principle exists to prevent.
How to estimate it, in order of preference
From the purchase order and goods receipt, which is what those records are for. Failing that, from the last invoice for the same thing. Failing that, from whoever commissioned it. Document which you used, because an estimate with a stated basis is evidence and one without is a number.
Why the unapproved list is the raw material
Everything sitting unapproved at the cut-off is a candidate, and a team that recorded that list is estimating from a known population rather than from memory. That is the connection between running payables well and closing quickly. On the worked example on this site, $48,000 current, $21,000 at thirty days, $9,500 at sixty and $4,200 beyond is $82,700 owed, 42% of it overdue, with days payable outstanding of 30.26.
Questions people ask about accounts payable accrual
How accurate does an accrual need to be?
Materially right rather than exactly right, and consistently estimated. What is material is a judgement for your own accountants.
What is the difference between an accrual and a payable?
The invoice. A payable is invoiced and unpaid; an accrual is received and uninvoiced. Both belong in the period and they are recorded differently.
Do auditors always test accruals?
Completeness of liabilities is a standard focus and the search for unrecorded liabilities is the usual procedure. Extent depends on materiality and your controls.