What are accruals in accounting?
Answered 17 March 2026
Your question — "What are accruals in accounting?" — is a general accounting/financial concepts question, not a UK tax law question. The retrieved sources touch on the accruals basis only in specific tax and legal contexts (loan relationships, software rentals, film royalties, etc.) and do not contain a general definition of accruals as an accounting concept.
Using only the sources provided, I can offer the following limited, tax-contextual explanation:
What the sources say about the accruals basis (in a tax context)
The sources describe the accruals basis of accounting as a method that:
- Allocates income and payments to the period to which they relate, without regard to when they are actually made, received, or become due and payable.
- Recognises income as it is earned over time rather than all at once — for example, royalties earned across multiple periods are recognised in each period as the passage of time constitutes the relevant event.
- Requires that rentals and similar payments be spread over the useful life of an asset in accordance with correct accounting practice.
- Is contrasted with the mark-to-market basis, which values assets at fair value each period; the accruals basis is the standard method used by most companies.
- An accounting method equates to an authorised accruals basis if it allocates payments to accounting periods when they accrue.
⚠️ Important caveat: This assistant is designed to answer UK tax law questions using authoritative HMRC and legislative sources. The sources available do not contain a general textbook definition of accruals. For a comprehensive explanation of accruals as a general accounting concept, you should consult resources such as UK GAAP (FRS 102), IFRS (IAS 1), or a general accounting reference.
Citation sources
Payments of this kind are revenue. The timing of deductions is governed by correct accounting practice which normally requires the rentals to be spread over the useful life of the software in accordance with the accruals basis (see BIM31030). What is correct accounting practice is ultimately a question of law but the courts are heavily influenced by current generally acceptable practice.
This guidance applies to periods of account beginning before 1 January 2005 The two authorised accounting methods are accruals mark to market. Mark to market is normally used in limited circumstances by financial institutions and by similar businesses that trade in debt for accounting purposes. Other companies will nearly always use the accruals basis.
from the exploitation of the films under the DA in accordance with the accruals basis and “in the context of an accrual…the benefit or the event that arises is through effectively the passage of time”. (2) There are a number of measurement points to take into account. If an entity enters into a transaction that will result in a royalty being earned in years 1, 2, 3 and so on, “then that royalty, under the accruals basis of accounting, is effectively earned each period,” and the event that occurs
Any accounting method that allocates payments to accounting periods when they accrue equates to an authorised accruals basis (FA02/SCH26/PARA18(5)(a)). For example, a company may follow an authorised accruals basis but not make arrangements for bad debts which conform to the requirements of FA02/SCH26/PARA22 - it may make a general provision. But its method will equate to an authorised accruals basis because it uses the allocation method.
hall be such as to secure that no part of the loss that is referable to a time when the relationship was not subject to United Kingdom taxation shall be treated for the purposes of this Chapter as arising in the loss period or any other accounting period of the chargeable company. 94. UKC1 submits that clause 76 clearly distinguished “profits, gains and losses” and “interest payments, charges and expenses”. 95. It is also said that paragraph 9 Schedule 8 was intended to apply where an “authorise