How do Accruals Work?

Hi guys,

I am currently studying AAT Level 2. However, I recently applied for a job which included a finance test. The question below was included in the test.. However, I am not sure what an accrual is, and whether is should have been a credit or a debit. Please can you help, so I can get this kind of question right in the future. My feedback from the test was that my answers were not quite good enough, and I know I probably got the below question wrong as I guessed the answer.

Question: The balance on a research grant account at the end of the month is a debit
of £4,000. On review you discover that £9,000 of salary costs have been
posted to the account in error and an accrual for £3,000 for lab costs is
required. What is the revised balance on the account after your adjustments?

Thanks for your help!

Comments

  • Victoria95Victoria95 Registered Posts: 1
    Hello,

    I am currently studying level 2 also so not sure if I am 100% correct but as no-one has replied I thought I would try to help.

    In this case (because its an expense account) the accrual would be a cost that the business have not yet had, but need to account for it in the period. For example a company received 20 books in March, they have got the benefit of the books but they haven't yet been invoiced, so they put the accrual onto the ledger to show that the cost. The accrual will reverse out next period, and then when the invoice comes in they will put the cost back in to show the actual transaction.

    So in the example you mention above

    Balance is £4,000
    Less £9,000 for the mistake
    Now balance is credit of £5,000
    Plus the debit accrual of £3,000
    Revised balance is £2,000 credit

    Can anyone with more experience help?
    Is this correct or have I misunderstood?
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