Hi,
Accrual/Deferral entries are used for monthly provisions. It is part of month-end closing activity where we need to keep provision for certain expenses which are supposed to be accounted in a particular month and not accounted for.
We can also use sample documents for creating month-end provisions. However, there are few problems if we keep provision using sample documents, which are explained herebelow:
1) The person who keeps provision is not the same who is going to make payment. Here the person who is making payment on receipt of Bill/expense statement, may not know that a provision has already created in books of account in previous month. Thereby duplication of expenses will occur.
2) The amount may not exactly match. Here the amount what we are keeping provision may not exactly match with Bill/expense statement. Thereby there will be credit/debit lying in provision for expenses account/s.
To overcome the above problems, Accrual/Deferral document concept has come. In Accrual/Deferral, we create the provision for certain accounts for one particular month (entry with month-end date), which will be reversed on next month first date. That means, when we receive the actual bills/expense statement, we need to directly debit the expenses instead of provision account. Since provision is created in the previous month end date and reversed back on the first day of next month.
Most Important: Please note that Accrual/Deferral documents are not used in year-end closing activities. It will be used only during month-end activities.
I hope it is clarified to you about the concept behind Accrual/Deferral. In case you still have any questions, please come back.
Regards,
Srinivas
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