Accounting Terms Dictionary

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Accrue means to accumulate or to tally up the amount.

Let’s say I pay all my workers combined $10,000 for a five day week and August ends on a Wednesday. I pay my workers $10,000/ 5 =$2000 per day. If I am compiling the income statement for August, I would want to know how much I owed in salary for this month. $2000 times 3 days =$6000 is owed. I owe them $6000 for this month, but I’m not actually paying them until payday. I would put the extra $6000 as salary expense on August’s income statement as an accrued expense. Let’s say I charged my client $500 per month for advertising in my paper, but I only bill him every quarter. At the end of one month I would have earned $500 even though I hadn’t yet received any money. That $500 worth of income would go on the August income statement as accrued revenue. Both the revenue and the expense are accruals because I tallied up what I owe, but haven’t paid yet and I tallied up what my customer owes me, but I haven’t yet received any money.

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