Month-End Accruals Journals: A 20-Minute Routine

Month-End Accruals Journals: A 20-Minute Routine

Accruals are the journals that separate proper month-end accounts from a trial balance with a shrug. The concept is simple: record costs in the month they relate to, not the month the invoice happens to arrive. The execution, though, is where small finance teams either build a habit or let it slide. Here is a 20-minute routine that gets accruals done properly every month without turning month-end into an event.

Why accruals matter more than people think

If your electricity bill arrives quarterly but you only record it when it lands, two of your three monthly profit figures are overstated and the third takes the full hit. Multiply that across rent, insurance, professional fees, and subcontractor costs, and your monthly management accounts become fiction. Decisions made on fiction are bad decisions: you think a month was profitable when it was not, or you panic over a loss that was really three months of costs arriving at once.

Accruals fix this by spreading costs to the months they belong to. They are also one of the first things an auditor, a buyer, or a bank will look at. Clean accruals signal a finance function that knows what it is doing.

The 20-minute routine, step by step

Set aside a fixed slot, ideally the first working day of the new month. Twenty minutes is realistic once the routine is established; the first couple of months take longer.

Minute 0 to 5: pull up last month's accruals schedule. Most accruals repeat, so copy it forward as your starting point. Anything since invoiced gets reversed; anything still uninvoiced stays or gets updated.

Minute 5 to 12: review the repeating list against reality. Has the electricity estimate changed? Did the insurance renewal land? Any new costs this month, such as a project that completed but has not been billed? This is the judgment part, where knowledge of the business matters more than accounting theory.

Minute 12 to 17: post the journals. Each accrual is a debit to the expense account and a credit to the accruals liability account, with a clear narrative: supplier, period, basis of estimate. Post reversing journals dated the first of next month so they unwind when the invoice arrives.

Minute 17 to 20: save the schedule with the workings. One spreadsheet, one tab per month: each accrual, the basis, and the reversal. That is your audit trail and your memory for next month.

Building the repeating accruals list

Every business has costs that accrue every month: utilities from prior bills, rent invoiced in arrears, insurance spread from the annual premium, accountancy fees spread over the year, payroll cut-off, and retainer services billed quarterly.

Write this list down once, with the basis for each estimate. Review it quarterly to catch changes: a new supplier, a price rise, a service that stopped. The list is the routine; without it, you are reinventing the wheel every month and missing items.

Estimating without guessing wildly

Estimates should be reasoned, not invented. For utilities, use the average of the last three bills, adjusted for season. For professional fees, use the engagement letter divided by twelve. For payroll cut-off, use daily rates times days worked after the last payroll run. Write the basis on the schedule so anyone reviewing it can see the logic. Materiality is your friend: scale the effort to the number.

Reversals: the part everyone forgets

An accrual without a reversal is a time bomb. If you accrue 5,000 pounds for subcontractor costs in March and the invoice arrives in April for 4,800, the reversal removes the 5,000 estimate and the invoice posts the actual 4,800. Without the reversal, you have double-counted the cost across two months.

The cleanest method is automatic reversing journals dated the first of the following month. If your software does not support them, post the reversal manually as the first journal of the new month. Make reversals non-negotiable: every accrual posted must have its reversal posted at the same time.

Prepayments: the mirror image

While you are at it, handle prepayments the same way. Annual insurance paid in January should sit on the balance sheet and release monthly, not hit January's profit and loss in full. The routine is identical: schedule, estimate, journal, reverse. Many businesses do accruals but ignore prepayments, which distorts the numbers just as badly in the opposite direction.

Common pitfalls

The classic pitfall is accruing the same cost twice because two people posted journals without checking the schedule. The single schedule, owned by one person, prevents this. Another is leaving old accruals on the balance sheet for months; review the accruals balance quarterly and clear anything stale.

Making it stick

The 20-minute routine works because it is short, scheduled, and repeatable. Put it in the calendar as a recurring appointment. Keep the one spreadsheet. Own the list. The first month takes an hour; by month three it takes twenty minutes; by month six you will wonder why it ever felt like a chore.

If month-end still feels like a scramble, the problem is usually process, not people. Finex Outsourcing provides monthly management accounting and financial accounting outsourcing for UK businesses, with month-end routines like accruals built in and delivered on schedule. Either way, start the routine this month, because the management accounts are only as good as the journals behind them.

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