An accrual journal entry records revenue when it is earned and expenses when they are incurred — not when cash moves. The two entries you will use most:
| Situation | Debit | Credit |
| Income earned, not yet received | Accrued Income (asset) | Revenue |
| Expense incurred, not yet paid | Expense | Accrued Liabilities / Accounts Payable |
That is the whole mechanism. What follows is how to calculate the amounts, when to reverse the entries, the four types of accrual you will meet in practice, and the mistakes that cause audit findings.
Read more: What is a Contra Entry?
Accrual vs Cash Accounting: The Difference That Matters
Cash basis
Record revenue when the money arrives, record expenses when the money leaves. Simple, intuitive, and favoured by freelancers and very small firms.
Its limitation is that it tells you nothing about what you are owed or what you owe. A business with AED 200,000 of unpaid invoices and AED 150,000 of unpaid bills looks identical to one with neither.
Accrual basis
Record transactions when they are incurred, regardless of payment timing. Delivered a service? Revenue is earned. Received a service? The expense exists. Cash is a separate question.
This is what IFRS requires, and it is what makes income and expenses land in the period they actually belong to.
Side by Side
| Feature | Cash Basis | Accrual Basis |
| Revenue recognised | When cash is received | When earned |
| Expense recognised | When cash is paid | When incurred |
| Visibility of liabilities | Limited — you see cash, not obligations | Full |
| IFRS compliant | No | Yes |
| Best for | Sole traders, very simple operations | Growing or complex entities, anyone seeking finance |
| Effort | Low | Higher — requires period-end adjustments |
The practical trigger to switch: if you hold inventory, offer credit terms, or need audited statements for a lender or investor, cash basis stops being viable.
Read more: Best Audit Firms in Dubai
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The Four Types of Accrual Entry
Every accrual adjustment you will ever make falls into one of these four. Knowing which one you are dealing with tells you the entry immediately.
| Type | What It Is | Debit | Credit |
| Accrued revenue | Earned, not yet invoiced or received | Accrued Income (asset) | Revenue |
| Accrued expense | Incurred, not yet invoiced or paid | Expense | Accrued Liabilities |
| Prepaid expense | Paid in advance, not yet consumed | Prepaid Expense (asset) | Cash |
| Unearned revenue | Received in advance, not yet delivered | Cash | Unearned Revenue (liability) |
The pattern worth noticing: accruals create assets and liabilities for things that have happened but have not been paid. Prepayments and unearned revenue do the reverse — cash has moved for something that has not yet happened.
Accrued Income Journal Entry: Step by Step
Accrued income is revenue you have earned but not yet invoiced or collected. Recording it correctly keeps revenue in the right period and keeps your statements defensible.
1. Identify what has been earned but not received
Review contracts, service agreements and completed work. The test is whether the performance obligation was satisfied inside the period — not whether you have raised the invoice yet.
2. Calculate the amount
- Contract terms or agreed rates
- The proportion of the service period actually completed
- A reliable estimate where the final figure is not yet known
Document how you arrived at the figure. An estimate you can explain is defensible; an estimate you cannot is a finding.
3. Record the entry
Example: you earn AED 5,000 in March but invoice in April.
| Account | Debit (AED) | Credit (AED) |
| Accrued Income | 5,000 | |
| Service Revenue | 5,000 |
Revenue lands in March, where it was earned, and the receivable sits on the balance sheet as a current asset.
4. Clear it when payment arrives
This is the step people skip, and skipping it double-counts your revenue. When you invoice or receive payment in the next period:
| Account | Debit (AED) | Credit (AED) |
| Cash / Accounts Receivable | 5,000 | |
| Accrued Income | 5,000 |
The accrued income balance goes back to zero. Revenue is not touched again — it was already recognised in March.
5. Reconcile before you close
- Every accrued balance is supported by a document or a documented estimate
- Income sits in the period it was earned
- Prior-period accruals have actually been cleared, not left sitting
An accrued income account that never returns to zero is the clearest sign that step 4 is not happening.
Accrued Expense and the Accrual-to-Cash Entry
The mirror image of accrued income. You have received the benefit; the payment comes later.
Example: a utility bill of AED 2,000 relating to March, paid in April.
March — record the expense
| Account | Debit (AED) | Credit (AED) |
| Utilities Expense | 2,000 | |
| Accounts Payable | 2,000 |
April — pay it
| Account | Debit (AED) | Credit (AED) |
| Accounts Payable | 2,000 | |
| Cash / Bank | 2,000 |
The expense is not recorded again. Only the liability and cash accounts move. Debiting the expense a second time on payment is one of the most common accrual errors, and it overstates your costs for the period.
Accrual Entries in Everyday Practice
Transactions rarely line up neatly with cash flows. These are the situations you will meet most often:
| Situation | Debit | Credit |
| Salaries owed at month end | Salaries Expense | Salaries Payable |
| Work delivered, customer pays later | Accounts Receivable | Service Revenue |
| Insurance paid for a full year | Prepaid Insurance | Cash |
| — monthly recognition thereafter | Insurance Expense | Prepaid Insurance |
| Customer pays before delivery | Cash | Unearned Revenue |
| — monthly recognition thereafter | Unearned Revenue | Revenue |
| End-of-service benefit accrued | Staff Costs | EOSB Provision |
| Rent for the period, invoice not received | Rent Expense | Accrued Liabilities |
Notice the last two rows. End-of-service benefits are a UAE-specific accrual that cash accounting completely ignores — and it is a liability that grows silently until someone resigns.
Read more: UAE VAT Accounting Entries · How to File a VAT Return in the UAE
Eight Common Accrual Entry Mistakes
These are the errors that show up in audit findings and management accounts that do not reconcile. Most are timing problems rather than arithmetic ones.
| Mistake | What Goes Wrong | How to Prevent It |
| 1. Never reversing the accrual | Revenue or expense counted twice — once when accrued, again when invoiced or paid. Overstates both periods. | Reverse or clear every accrual in the following period. Any accrual account that never returns to zero is a red flag. |
| 2. Re-recording the expense on payment | Debiting the expense again instead of the payable. Costs overstated, liability never cleared. | On payment, debit the liability — never the expense. |
| 3. Accruing without documentation | An estimate nobody can explain. First thing an auditor asks about. | Attach the contract, timesheet or calculation basis to every accrual. |
| 4. Recording in the wrong period | Revenue or expense lands in the month the invoice was raised rather than the month the work happened. | Test on the performance date, not the invoice date. |
| 5. Confusing accrued and unearned revenue | Booking cash received in advance as revenue. Overstates income and hides a real liability. | Cash before delivery is a liability. Delivery before cash is an asset. Check which came first. |
| 6. Expensing prepayments immediately | A twelve-month insurance premium hitting one month. Distorts that month and every month after. | Capitalise the prepayment, then release it monthly. |
| 7. Over-accruing then leaving it | The estimate was too high and never corrected. Carries a wrong balance forward indefinitely. | Reverse the excess: debit the accrued liability, credit the expense. |
| 8. No period-end checklist | Accruals depend on someone remembering. When they are on leave, the close is wrong. | A written close checklist listing every recurring accrual, with an owner. |
If you only fix one: make it the first. Unreversed accruals are the single most common cause of management accounts that look right in isolation and wrong across periods.
Why Accrual Entries Are Worth the Extra Work
- Consistency — revenue and costs land in the period they belong to, so month-on-month comparisons mean something.
- Compliance — IFRS requires the accrual basis. If you need audited statements, this is not optional.
- Credibility — lenders and investors discount cash-basis numbers because they hide obligations.
- Forecasting — you cannot plan around liabilities you have not recorded. Accruals make the next three months visible.
- Real margin visibility — matching costs to the revenue they generated is the only way to know which work is actually profitable.
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FAQs about Accrual Accounting Journal Entries
What is the journal entry for accrued income?
Debit Accrued Income (an asset) and credit Revenue. When the payment later arrives, debit Cash or Accounts Receivable and credit Accrued Income to clear the balance — revenue is not recognised a second time.
What is the journal entry for an accrued expense?
Debit the relevant expense account and credit Accrued Liabilities or Accounts Payable. For example: Dr. Salaries Expense / Cr. Salaries Payable. When you pay, debit the liability and credit Cash — not the expense again.
Do I reverse an accrual, or adjust it?
Either works as long as the balance clears. Reversing posts the opposite entry at the start of the next period; adjusting nets the accrual against the actual invoice when it arrives. Reversing is cleaner in most systems because it is harder to forget.
What is the journal entry for an over-accrual?
Reverse the excess: debit the accrued liability and credit the related expense account. Do this as soon as you identify it rather than carrying the wrong balance forward.
How do I record accrued salaries?
If salary is earned in the current month but paid the next: Dr. Salaries Expense / Cr. Salaries Payable. On payment: Dr. Salaries Payable / Cr. Cash. In the UAE, remember that end-of-service benefits accrue alongside salary and need their own provision.
What is the difference between accrued income and unearned revenue?
They are opposites. Accrued income means you delivered first and will be paid later — an asset. Unearned revenue means you were paid first and will deliver later — a liability. Confusing the two is one of the most common accrual errors.
What is the accrual basis of accounting, and how does it differ from cash basis?
The accrual basis records revenues and expenses when they are earned or incurred, regardless of when cash moves. The cash basis records transactions only when money changes hands. The accrual basis shows what you are owed and what you owe; the cash basis does not.
Why do accrual journal entries matter?
They put income and costs in the period they actually relate to. Without them, a month with heavy unpaid invoices looks profitable and a month where those invoices get paid looks exceptional — neither reflects the business.
Is accrual accounting required under IFRS?
Yes. IFRS requires revenues and expenses to be recognised in the periods they are earned or incurred, not when cash is exchanged. If you need IFRS-compliant statements, accrual accounting is mandatory.
Can I switch from cash to accrual accounting?
Yes, and most businesses do as they grow or seek finance. The switch requires adjusting opening balances to bring in receivables, payables, prepayments and accruals that cash accounting never recorded. Plan it at a period end, not mid-period.
Is accrual or cash accounting better for a small business?
Cash accounting is simpler and adequate for a sole trader with no inventory and no credit terms. Once you hold stock, invoice on terms, or need audited statements, accrual accounting stops being optional — cash basis will actively mislead you.
What should a period-end accrual checklist include?
Every recurring accrual with a named owner: salaries and end-of-service, rent, utilities, professional fees, interest, and any prepayment schedules due for release. Add a check that last period’s accruals have actually cleared. Accruals that depend on memory get missed.
Disclaimer: This publication is for informational purposes only and should not be considered professional or legal advice. While we strive for accuracy, we make no guarantees regarding completeness or applicability. mazeed, its members, employees, and agents do not accept or assume any liability, responsibility, or duty of care for any actions taken or decisions made based on this content. For official guidance, please refer to the UAE Ministry of Finance and the Federal Tax Authority
