An increase accrual adjustment is a period-end journal entry that raises the recorded amount of an accrued expense or accrued revenue so the books reflect economic activity that has already happened but hasn’t yet moved through cash or an invoice. To increase an accrued expense, you debit an expense account and credit a liability account. To increase accrued revenue, you debit an asset account and credit a revenue account. Same logic on both sides: recognize the activity in the period it occurred.
The Debit and Credit Pattern
Every accrual increase touches one balance sheet account and one income statement account, and the direction is fixed by standard debit/credit rules. Debits increase assets and expenses. Credits increase liabilities, equity, and revenue. So an accrual that puts an obligation on your books (you owe someone) credits a liability. An accrual that puts a claim on your books (someone owes you) debits an asset. The other half of the entry lands on the income statement.
Two debits and credits of equal value keep the accounting equation in balance. If the totals don’t match, the entry is wrong before you look at anything else.
Increasing an Accrued Expense
An accrued expense is a cost the business has already incurred but hasn’t paid or been invoiced for. The entry is always the same shape: debit the relevant expense account, credit an accrued liability account. Expense on the income statement goes up, liability on the balance sheet goes up.
Wages and Salaries
Payroll is the most common case. If your accounting period ends December 31 but employees aren’t paid until January 5, the wages they earned in December belong in December. Debit Wages Expense and credit Wages Payable for the amount earned but unpaid. Skip the entry and December looks artificially cheap while January looks artificially expensive.
Utilities
You consumed electricity and water throughout the month, but the bill hasn’t arrived. If you estimate the cost at $8,500, debit Utilities Expense for $8,500 and credit Accrued Liabilities for $8,500. The estimate doesn’t need to be exact; a reasonable figure based on prior bills or meter readings is enough.
Interest on Debt
Interest accrues continuously even when payments are only due monthly or quarterly. The formula is Principal × Annual Interest Rate × (Days Elapsed ÷ 365). A $50,000 loan at 6% with 15 days elapsed since the last payment gives $50,000 × 0.06 × (15 ÷ 365) = $123.29. Debit Interest Expense for $123.29 and credit Accrued Interest Payable for the same amount.
Increasing Accrued Revenue
Accrued revenue is the reverse: the business has earned income by delivering goods or services but hasn’t billed or collected yet. Debit an asset account, typically called Accrued Revenue or Unbilled Receivables, and credit the appropriate revenue account.
Take a consulting firm that has completed 75% of a $50,000 fixed-fee project by month-end but can’t invoice until the project is 100% done. It has still earned $37,500. Debit Accrued Revenue for $37,500 and credit Service Revenue for $37,500. Under ASC 606, revenue is recognized when a performance obligation is satisfied, which means as the work is delivered, not when the contract permits an invoice.
Unbilled receivables come up often in project-based work, subscription services, and any arrangement where billing milestones lag the actual work. The account name might differ on your chart of accounts, but the entry is the same. Once you send the invoice, reclassify the balance from Unbilled Receivables to standard Accounts Receivable, because at that point you have a formal billing document behind the claim.
Accrued Liabilities Are Not Accounts Payable
New bookkeepers routinely confuse these accounts because both represent money the company owes. The distinction is clean. Accounts payable means an invoice has arrived and hasn’t been paid. Accrued liabilities means the goods or services have been consumed but no invoice has come in yet. Both sit under current liabilities on the balance sheet, but they track different stages of the payment cycle.
This matters at close. AP entries are driven by incoming invoices and get handled in the normal course of operations. Accrued liabilities require a deliberate adjusting entry at period-end, often built from estimates, purchase orders, or vendor confirmations. If you only record what’s in the AP system, you’ll understate liabilities every period by the amount of work consumed but not yet billed.
Reverse the Entry in the Next Period
This is where accrual adjustments go wrong most often. After the books close and a new period begins, you generally reverse the entry. A reversing entry is the exact opposite of the original. If you debited Wages Expense and credited Wages Payable for $18,000 on December 31, you debit Wages Payable and credit Wages Expense for $18,000 on January 1.
The reason is mechanical. When the actual payroll runs on January 5, the system posts the full paycheck to Wages Expense automatically. If the December accrual is still sitting on the books, the expense gets counted twice: once from the accrual, once from the real paycheck. The reversing entry clears the estimate so the actual transaction takes its place cleanly.
The same logic applies on the revenue side. If you accrued $37,500 of consulting revenue in December and then invoice the client in January, failing to reverse the accrual means January’s books carry both the accrual and the invoice, overstating revenue by $37,500. Reversing entries are the second half of the accrual process, not optional cleanup.
Impact on the Financial Statements
Every accrual increase hits two statements at once. Raising an accrued expense reduces net income on the income statement and increases total liabilities on the balance sheet. Raising accrued revenue increases net income and increases total assets.
The balance sheet impact is temporary. Once the accrued expense is paid or the accrued revenue is collected, the liability or asset returns to zero and cash moves in the expected direction. During the reporting period itself, the accrual is what keeps the statements aligned with economic reality rather than cash-flow timing.
When an Accrual Is Worth Recording
Not every unpaid cost at month-end needs a formal entry. Accounting standards use materiality to draw the line: if omitting or misstating an amount wouldn’t change the decisions of someone reading the statements, it’s immaterial and you can skip the entry. A $47 office supply delivery that arrived December 30 but won’t be invoiced until January probably isn’t worth accruing. A $47,000 contractor payment almost certainly is.
Most companies set internal thresholds, either a flat dollar amount or a percentage of total expenses, below which they don’t bother. Auditors apply a similar framework, typically setting performance materiality at 50% to 75% of overall materiality for the statements as a whole. If you’re unsure whether something crosses the line, accrue it. An unnecessary accrual that gets reversed next month costs a few minutes of bookkeeping. A missing accrual that an auditor catches costs a restatement.