What is accruals?

One of the main principles behind accounting is that transactions should be accounted for an accruals basis. This means that the transaction should be recognised in the accounts when the revenue or expense is incurred and not when the cash enters or leaves the business.

For example, the company must recognise the cost of the use of electricity for FY2011 in the accounts for that year, even although they may not have to pay for it until the following year.