Month-end accruals and journal entries, with their reversals
By Arthur Teboul, DokuTrak · Published
In brief
Month end accruals are journal entries that put an expense or revenue into the month it belongs to before the bill or invoice exists, then reverse when the real document arrives. Each estimate needs a document behind it, such as a timesheet, a contract or the last few bills.
The checklist: Month-end accruals and journal entries checklist
Work each group at the close and keep the worksheet with the month. Lines with a document name what to request from the client before you estimate.
- PDFPrint it or tick it off on screen.Free, no email
- WordEdit it and send it under your name.Free, with your email
- Excel trackerOne row per item, with a status column.Free, with your email
Documents to request for the estimates
- Contractor timesheets for the monthHours worked through the last day, for unbilled contractor work.
- Service contracts with a fixed monthly feeRate and term; requested once, then kept on file.
- The last three bills for each utility or recurring vendorBasis for a cost-per-day estimate.
- Next payroll register or pay stubsGross wages for days worked in the closing month.
- Loan statement or promissory noteBalance, rate and last payment date.
Post the accruals
- Accrue vendor bills not yet receivedDr Expense / Cr Accrued liabilities. Reverse day 1 of next month.
- Accrue utilitiesExample: last bill $310 for 31 days = $10 a day; 12 unbilled days = $120.
- Accrue payroll after the last paydayGross wages for the unpaid days plus employer payroll taxes.
- Accrue loan interestPrincipal x annual rate / 365 x days since the last payment.
- Accrue revenue for work done but not invoicedDr Unbilled receivable / Cr Revenue; support: engagement or delivery record.
- Accrue bonuses or commissionsFrom the written plan or the owner’s email setting the amount.
Post the recurring adjustments
- Earn down deferred revenueDr Deferred revenue / Cr Revenue for the month’s share of each contract.
- Amortize prepaid expensesFrom the prepaid schedule total for the month.
- Post depreciationFrom the fixed asset register.
Worksheet and next-month check
- Fill one worksheet line per accrualVendor, description, method, amount, document reference, reversal date.
- Record the firm’s dollar floor for accruals on the worksheet
- Set each accrual to reverse on the first day of next monthReversing or auto-reversing journal in the software.
- Next month: confirm the reversal and the actual bill postedAdd the actual amount and the difference to the worksheet.
- Adjust the estimate method where the difference was large
What an accrual is, in tax and in the books
An accrued expense is a cost the business owes for the month but has not been billed for yet. Accrued revenue is the mirror: work done this month that the business has not yet invoiced.
The tax rule behind the idea is the accrual method’s timing test. An expense is generally deductible when the all-events test is met and economic performance has occurred (IRS Publication 538, Accounting Periods and Methods). The all-events test means the liability is fixed and its amount can be figured with reasonable accuracy (IRS Publication 538, Accounting Periods and Methods).
Books often accrue more than the tax rule needs, because owners and lenders want a true monthly picture. A cash-basis client has no accruals on its books, but you may still keep an accrual worksheet if a lender asks for accrual-basis statements.
The standard month-end journal entries
Most small-business closes use the same handful of entries every month. The table gives each one its debit, credit and the paper that supports it.
| Entry | Debit | Credit | Support | Reverses? |
|---|---|---|---|---|
| Bill not yet received | Expense | Accrued liabilities | Contract rate, timesheet or recent bills | Yes, first day of next month |
| Wages earned after the last payday | Wage expense and employer tax expense | Accrued payroll | Next payroll register | Yes |
| Loan interest since the last payment | Interest expense | Accrued interest | Loan statement or note | Yes |
| Work done, not invoiced | Unbilled receivable | Revenue | Signed engagement or delivery record | Yes, when invoiced |
| Cash received in advance | Deferred revenue | Revenue (monthly share) | Customer invoice and contract term | No, earned down |
| Prepaid cost used this month | Expense | Prepaid expenses | Prepaid schedule | No |
| Depreciation | Depreciation expense | Accumulated depreciation | Fixed asset register | No |
How to estimate when the bill has not arrived
Pick the method that the document on hand supports, and write the method on the worksheet. The reviewer should be able to redo your number from the paper.
The IRS lists invoices, account statements and canceled checks among the documents that support expenses (IRS Publication 583, Starting a Business and Keeping Records). For an estimate, the same papers from earlier months are your evidence.
- Utilities: the last bill’s cost per day, times the days not yet billed.
- Contractor hours: hours on the contractor’s timesheet through month-end, times the contract rate.
- Recurring services, such as cleaning or IT support: the fixed monthly fee in the contract.
- Interest: the loan balance, times the rate, for the days since the last payment.
- Bonuses or commissions: the written plan applied to the month’s results.
How to accrue payroll at month-end
Payroll rarely ends on the last day of the month. When the last payday covers work only up to some day before month-end, the days after it are wages the business owes but has not paid.
Take the next payroll register, find the gross wages for the days that fall in the closing month, and add the employer’s share of payroll taxes on them. Post that as accrued payroll and reverse it when the payroll actually runs.
A reversing entry is the mirror of an accrual, dated the first day of the next month, so the real bill or payroll lands on a zero balance. Use your software’s reversing or auto-reversing option so no one has to remember it.
Accrual or prepaid: telling them apart
An accrual is a cost used before it is paid. A prepaid expense is the reverse: paid before it is used, such as an annual insurance premium, and spread over the months it covers. The schedule for those is in the prepaid expenses schedule.
Tax treats prepaids under its own rule. A taxpayer does not have to capitalize a benefit that ends by the earlier of 12 months after it starts or the end of the next tax year (26 CFR 1.263(a)-4, the 12-month rule in paragraph (f)). Your books can still spread the cost month by month.
The check next month
An accrual is only half done when you post it. Next month, confirm three things: the reversal posted, the real bill posted, and the difference between estimate and actual makes sense.
A large gap means the estimate method needs work, such as using a longer run of past bills. Keep the worksheet with the close so the month-end close process review can follow each line.
Questions people ask
What is the journal entry for an accrued expense?
Debit the expense account and credit accrued liabilities for the estimated amount. On the first day of the next month, post the same entry in reverse, so the real bill replaces the estimate.
Do cash-basis clients need month-end accruals?
Not on their books, because the cash method records expenses when paid. Keep an accrual worksheet only if the client needs accrual-basis reports, for example for a lender.
What support should I keep for each accrual?
Keep the document the estimate came from, such as a contract, a timesheet, the last bills or the next payroll register, plus the worksheet line that shows the calculation.
Should every small amount be accrued?
No. Set a dollar floor below which the firm does not accrue, write it on the worksheet, and apply it the same way every month.
Sources
- IRS Publication 538, Accounting Periods and Methods: Under an accrual method an expense is deducted when the all-events test is met and economic performance has occurred.
- IRS Publication 583, Starting a Business and Keeping Records: Documents for expenses include canceled checks, account statements, invoices and petty cash slips.
- 26 CFR 1.263(a)-4, the 12-month rule in paragraph (f): No capitalization is required for a right or benefit that does not extend beyond the earlier of 12 months after it begins or the end of the following tax year.
About the author
Arthur Teboul (Founder, DokuTrak) is building DokuTrak after watching professionals lose hours chasing clients for documents over email. Arthur Teboul.
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How this page was made (methodology): it is built from the primary sources listed under Sources, and every rule and figure on it links to the source it comes from. Last updated October 25, 2026. Spotted an error or a rule that changed? Contact us.
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