Where Do Accruals Appear on the Balance Sheet
Accruals typically appear under the “Liabilities” section of the balance sheet. More specifically, they are usually listed as a part of “Current Liabilities,” since they are obligations that the company expects to settle within one year or one operating cycle, whichever is longer. Accruals may include items like accrued wages, accrued interest, and accrued expenses.
Example of Where Do Accruals Appear on the Balance Sheet
Let’s take the example of a small software development firm, “CodeCrafters Inc.,” to illustrate where accruals might appear on the balance sheet. This fictional company has several accruals like accrued wages for employees, accrued utility expenses, and accrued interest on a loan.
As of December 31, 2023
Assets ------ (Current assets and non-current assets sections) ... -------- Total Assets: $300,000 Liabilities and Equity ----------------------- Current Liabilities: <-- Accruals would appear here Accounts Payable: $20,000 Accrued Wages: $8,000 <-- Example of an accrual Accrued Utilities: $1,500 <-- Example of an accrual Accrued Interest: $2,500 <-- Example of an accrual -------- Total Current Liabilities: $32,000 Non-Current Liabilities: Long-Term Loan: $100,000 -------- Total Liabilities: $132,000 Equity ------ (Owner's equity section) ... -------- Total Equity: $168,000 -------- Total Liabilities and Equity: $300,000
In this example:
- Accrued Wages: $8,000 has been accrued for wages that are owed to employees but have not yet been paid. This could be because the balance sheet date is in the middle of a pay cycle.
- Accrued Utilities: $1,500 represents utility expenses that have been incurred but not yet billed or paid.
- Accrued Interest: $2,500 is the accrued interest on a loan that has not yet been paid as of the balance sheet date.
These accruals are grouped under the “Current Liabilities” section because they are expected to be settled within one year. By including these accruals, the balance sheet provides a more accurate picture of the company’s financial position, capturing the obligations that have been incurred, even if they haven’t been paid yet.