Accruals are where a fast close and an accurate close most often pull against each other. Book too little and the month looks better than it is; book too much and next month carries a surprise write-back. A tracker that compares every accrual with the invoice that eventually arrives turns this from guesswork into a measurable process.
1. Accrual or provision?
Ind AS 37 draws the line clearly (para 11). Accruals are liabilities to pay for goods or services received but not yet invoiced, such as electricity for the month or consultancy hours worked. The uncertainty is small and they are reported within trade and other payables. Provisions are liabilities of uncertain timing or amount (para 10), such as warranties, litigation or restoration. They are recognised only when there is a present obligation, an outflow is probable and a reliable estimate can be made (para 14). The tracker below is for accruals; provisions need their own documented assessment.
2. Build the list before month end
- Recurring items: utilities, rent not yet billed, security and housekeeping, telecom, AMC charges.
- Open purchase orders with goods or services received but no invoice (GRN/IR clearing in SAP is a ready source).
- Professional fees and contract work based on progress reports from the business.
- Employee costs: bonus, leave encashment and incentives as per policy.
Ask each budget owner for a short monthly confirmation of what was received but not billed. A shared form with GL, vendor, amount and basis of estimate is enough.
3. Estimate with a stated basis
Every accrual line should say how it was estimated: last bill adjusted for days, PO rate × quantity received, contract fee × % complete, or the vendor's email confirmation. "As per management estimate" alone does not survive a review.
4. Reverse, then book actuals
The cleanest pattern is to post month-end accruals with an automatic reversal on the first day of the next month (in SAP, an accrual document with a reversal date, reversed in bulk with F.81 or the equivalent in your system). When the invoice arrives it is booked normally to the same GL, and the difference between the reversal and the invoice is the true over- or under-accrual.
5. Track accuracy
| GL / vendor | Accrued (Sep) | Actual invoice | Difference | Flag |
|---|---|---|---|---|
| Electricity – Plant | 4,80,000 | 5,12,400 | −32,400 | Under-accrued (6.8%) |
| Legal fees | 2,00,000 | 1,10,000 | +90,000 | Over-accrued (45%) |
| Housekeeping | 1,50,000 | 1,50,000 | 0 | – |
Set a tolerance, for example 5% and a minimum rupee amount, and investigate anything outside it. A pattern of over-accruals on one GL is a sign of padding; repeated under-accruals mean the estimate basis needs fixing.
6. Close the loop with GST and TDS
- Accrue the expense net of GST that will be claimed as input credit; the credit is taken only when the invoice is received and appears in GSTR-2B.
- TDS applies on credit to the payee's account, including credit to a suspense or provision account, so year-end provisions for amounts payable to identified payees are generally subject to TDS. Confirm the treatment for your cases with your tax advisor.
7. Make it reviewable
- One tracker per month, with the accrual journal attached.
- A summary by GL that ties to the trial balance.
- Sign-off by the preparer and reviewer, with ageing of any accrual not reversed after two months.
The free Template B: Month-End Accruals & Provision Tracker has the GL master, accruals, actuals and variance flags ready to use.
Related reading
This article is general information for finance professionals, not legal, tax or accounting advice for your specific situation. Laws, rules and standards change; check the current text and consult a qualified professional before acting.