What are the Meanings of Accrued?

Accrued is a term that comes from the verb accrue, whose etymological root is found in the Latin word vindicāre (translated as “appropriate”). The accrual action refers to contracting the right to receive some compensation for providing a service, developing a job or some other title.

The idea of ​​accrual, in this framework, refers to the act of accrual or the amount accrued. For example: “The accrued rate will report several million pesos to the national government”, “It was agreed that the payment be accrued on the 10th of each month”, “The tax must be calculated based on what was accrued during the last fiscal period”.

The accrued amount is linked to a contracted right that has not yet been collected. See Abbreviation Finder for acronyms related to accrued.

What is accrued

It can be said that an accrual is a contracted right that has not yet been collected, or an acquired obligation that has not yet been paid. The accrual principle, for its part, establishes that income or expense arise at the time of the commitment, increasing or reducing equity at that time for accounting purposes.

As a principle, therefore, accruals assume that operations must be recorded when the economic event that produces them materializes, regardless of whether it has been collected, invoiced or contracted. Suppose a company hires a worker who performs his activity in April, and pays him his salary at the beginning of May. The company, according to the accrual principle, must record the accrual of the expense as a result of the month of April, without taking into account that the employee has received in May.

The accrual principle, in short, establishes that gains and losses must be recognized based on time, regardless of whether they have been received or paid. Recording what is earned or lost at the time of collection or payment is an error from accounting criteria.

The accrual principle establishes that an operation must be recorded when the economic event that generates it materializes.

How to allocate income and expenses

In other words, the accrual principle provides us with a criterion to allocate expenses and income on a temporary basis, according to the actual flow of services and goods, instead of doing it taking into account the monetary flows that are generated. By applying this to accounting, we obtain a series of more relevant and precise data than through the cash principle, which is defined below.

First of all, it is important to point out that the accrual principle (or accrual principle ) and the cash principle are two methods used by companies for their management, for the recognition of their income and their expenses. As established by the cash principle, these two movements must be imputed according to the monetary flow, a concept that is also known as the monetary flow and that refers to the flow of money that begins with the payment that consumers make. companies for the goods and services they provide and ends when the workers receive it.

By using the cash principle, therefore, income and expenses are only recognized once the money enters or leaves, respectively, regardless of when the good or service was provided. This criterion is applied, for example, in the payment system for public services, such as the provision of electricity: when we pay an invoice, the expense is associated with that moment and not with that of the operation that is documented in the document itself..

There is the concept of accrued expense, which refers to that which has been made but has not yet been paid, and in this way it is understood that we make of the electricity that we receive from the supplier company before paying for it.