By KYN AI Advisory Team — AI implementation specialists, Singapore
An accrual records a cost or a revenue in the month it belongs to, even if the invoice or the cash has not arrived. If your October electricity is billed in November, October still carries the cost. Without accruals, your monthly profit swings with bill timing and tells you nothing reliable. A company with no finance team can run accruals with a fixed checklist, five categories and a rule for when to ignore small items.
Why do accruals matter if you only file once a year?
Most SMEs prepare financial statements annually and look at management numbers monthly. The monthly numbers drive decisions: hiring, pricing, whether to spend. If a quarter's rent, contractors and commissions land in a single month, that month looks like a loss and the next like a windfall. You then decide on noise.
Accruals also keep the year-end clean. An accountant who finds twelve unrecorded bills in January spends billable hours finding them. A short monthly routine moves that work to the people who know what happened.
What is the difference between an accrual, a prepayment and a provision?
| Term | Direction | Example | Entry at month-end | |---|---|---|---| | Accrued expense | Cost incurred, not billed | October electricity, bill in November | Debit expense, credit accrued liabilities | | Accrued income | Work done, not invoiced | October consulting, invoice in November | Debit accrued income, credit revenue | | Prepayment | Cash paid, cost not yet incurred | Annual insurance paid in October | Debit prepayments, credit expense over 12 months | | Deferred income | Cash received, work not done | Annual subscription paid upfront | Debit cash, credit deferred income, release monthly | | Provision | Probable cost, amount uncertain | Warranty claims | Estimate, record, review |
Most SMEs need the first four. Provisions appear when the business has warranties, disputes or onerous contracts, and are worth discussing with your accountant.
The five-step month-end accrual routine
Run these on the same working day each month, such as the third.
Step 1: close the cash side first
Reconcile the bank and card accounts to the statements. Accruals sit on top of a correct cash base. If the bank is not reconciled, you will accrue things that were already paid. See automating bank reconciliation if this step is the bottleneck.
Step 2: sweep for unbilled costs
Check five sources for goods and services received in the month with no bill yet:
- recurring suppliers (utilities, telco, cloud hosting, couriers);
- contractors and freelancers who have done work;
- staff costs: unpaid bonuses, commissions, leave pay, employer CPF on those amounts;
- professional fees: audit, tax, legal, company secretary;
- goods received not invoiced: delivery notes or goods-received records.
Ask each budget owner one question: "What did we use in the month that has not been billed?" Put the answers in a shared sheet with supplier, description, month and estimated amount.
Step 3: sweep for unbilled revenue
Check what you delivered but did not invoice:
- milestones reached, with the contract terms;
- hours worked on time-and-materials jobs;
- goods shipped before the invoice date.
Raise the invoice if it is due. If not, record accrued income at the amount you can support with a document.
Step 4: release prepayments and deferred income
Annual insurance, software, rent in advance, and subscriptions sold upfront need a monthly release. Keep a schedule: item, amount, start month, end month, monthly amount. Post the monthly line each close.
Step 5: reverse and review
Post the accrual with an automatic reversal on day one of next month. When the real bill arrives and is coded to the expense, the reversal cancels the accrual, and the cost appears once. Then compare: did the actual bill differ materially from the estimate? If yes, adjust your method.
How do you estimate an accrual when there is no bill?
Use the strongest evidence in this order.
- A document: a delivery note, signed timesheet, or supplier email stating the amount.
- The contract rate, multiplied by the units used.
- The same bill last month, adjusted for known changes.
- A reasoned estimate, noted with the basis.
Write the basis in the narration. "Accrual: October courier charges, 38 shipments at contract rate" beats "courier accrual". It also feeds the trail an auditor needs; read what an audit trail is.
When can you skip an accrual?
Set a materiality rule and apply it consistently. A simple one: do not accrue an item if it is below [S$200] and recurs in the same amount, because the effect washes out over months. Do accrue it if it is above the threshold, or if it is a one-off that would distort the month.
Write the threshold in your close checklist. A rule you follow every month is easier to defend than a judgement made differently each time.
What tools make this faster?
- A recurring list. A sheet or table of expected bills, with typical amounts, so the sweep is a review, not a hunt.
- Bills captured as they arrive. If supplier bills are read from the inbox and posted within a day, fewer are unbilled at month-end. Our note on capturing receipts for GST claims covers the capture side.
- Auto-reversing journals. Most accounting software supports them.
- A close checklist with an owner and a due date for each step.
Automation can propose accruals: a system can compare this month's expected recurring bills against the bills received and list the missing ones. A person confirms the amount and approves the journal.
What should the finished close pack contain?
Keep it to one folder per month: the bank reconciliations, the accrual sheet with the basis for each line, the prepayment and deferred income schedule, the posted journals with their reversals, and a short note of anything unusual. A reviewer should be able to rebuild the month from this folder without asking you a question.
What mistakes are common?
- Accruing a bill that arrived in the month, which duplicates the cost.
- Forgetting employer CPF on accrued bonuses.
- Never reversing the accrual, so the cost doubles when the bill lands.
- Accruing GST on an estimate. Claim GST input only on a valid tax invoice.
- Mixing estimate and fact: an accrual with no basis note cannot be reviewed.
Where KYN fits
KYN builds finance systems in a cloud account in your name. In our own books, bills are read from Gmail into the ledger, so fewer costs are unbilled at close. A system can list expected recurring bills that have not arrived, and propose reversing journals for a person to approve. Journals, filings and payments wait for a named person, and every action is logged with the actor.
We begin with a 14-day review of your recurring suppliers and your close checklist. A full build ships in under 90 days. See finance systems.
Frequently asked questions
Do I need accruals if I use cash accounting?
If you run the books on a cash basis for management purposes, you do not post accruals. Singapore companies preparing statutory accounts under the accounting standards use accrual accounting. Ask your accountant which basis your management reports follow.
How long should month-end take?
For a company with under 200 transactions a month, a prepared routine takes one to two hours. The first month takes longer because you are building the recurring list and the prepayment schedule.
Who should own the accruals?
Someone who knows what the business bought. In a company with no finance team, that is usually the operations lead with an accountant reviewing. Budget owners supply the facts, one person posts the journals, and a director approves.
Checked 30 October 2026.
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