Month-end accruals: what to accrue, when, and how to estimate

Short answer: Accrue a cost in the month you receive the goods or services, whether or not the bill has arrived or been paid. In practice that means a written materiality threshold, a standing list of recurring accruals with a fixed method for each, a monthly review for one-off items, and estimates based on the best evidence available at month-end.

This guide is for finance leads at SaaS and subscription businesses running a monthly close in Xero, QuickBooks Online or Zoho Books. It covers what qualifies as an accrual, how to decide what is worth accruing, how to estimate, and where accruals fit in the close.

The recognition principle in plain terms

Under accrual accounting, a cost belongs to the month in which the company receives the benefit, not the month in which it is billed or paid. If a contractor works for you in March and sends the bill in April, the cost is a March cost. At the end of March, the company owes for work it has received, so it has a liability, even without a bill.

An accrual records that cost and liability at month-end. Without it, March profit is overstated and April profit understated, and the monthly management accounts no longer show the real cost base. The difference from cash accounting is set out in cash vs accrual accounting. For the formal definitions of a liability and of expenses, and the criteria for recognizing them, see the IASB's Conceptual Framework for Financial Reporting.

What to accrue at month-end, and what not to

Accrue costs where the company has received goods or services by month-end and has not yet recorded a bill. The usual candidates at a SaaS business are:

• Services received but not billed. Contractors, legal and advisory work, agencies and recruiters.
• Usage billed in arrears. Cloud hosting, data, API and telephony costs.
• Goods received but not invoiced. Equipment delivered before the supplier's invoice.
• Payroll since the last run. Wages, commissions and payroll taxes earned in the month but paid in the next.
• Interest and fees. Loan interest or bank charges that run to month-end but are charged later.

Some items look like accruals but are not:

• Future commitments. A signed contract for work starting next month is not a cost yet.
• Purchase orders for goods not delivered. An open order is a commitment; accrue only what has been received.
• Costs paid in advance. These are prepayments, released over the service period, which is the opposite timing.

Setting a materiality threshold is a policy choice

No rule says how small an accrual can be before it is left out. That is a materiality decision, and it belongs in a written close policy rather than in each preparer's judgment.

A typical policy sets a per-item threshold for monthly accruals and a lower one, or none, at year end. Illustrative example: a company with $15M of annual operating expenses might accrue individual items above $2,500 each month, and review smaller items in aggregate at year end. The right figure depends on the size of the business, how the monthly accounts are used, and what the auditor considers reasonable.

Three points make the threshold work:

• Apply it per item, but watch the total. Twenty unaccrued items just below the threshold can add up to a material amount.
• Apply it consistently. Accruing a cost one month and not the next makes month-on-month trends unreliable.
• Agree it with the auditor. A threshold the auditor has seen is easier to defend than one decided during fieldwork.

Recurring accruals and one-off accruals need different routines

Recurring accruals are costs that arise most months and are billed late, such as hosting, payroll taxes or a monthly retainer. Keep them on a standing list with a fixed method for each: the source of the estimate, the account, the department or class, and who reviews it. Each month, the preparer updates the amount, not the approach.

One-off accruals are harder, because the finance team may not know the cost exists. A legal matter, a consultant engaged by a department head, or an event deposit can all go unbilled at month-end. The usual ways to find them are:

• A short month-end request to budget holders asking for work received but not billed.
• A review of open purchase orders against goods and services received.
• A scan of new contracts signed in the month.
• A check of bills received in the first days of the new month against the closed month.

How to estimate an accrual

An accrual should use the best evidence available when the books close. In rough order of reliability:

1. A supplier quote, statement or draft bill for the specific work.
2. A purchase order with the quantity received.
3. A usage report from the vendor's console.
4. The contract rate multiplied by time or units used.
5. The run rate of recent bills, adjusted for known changes.
6. A budget holder's estimate, recorded with their name and the date.

Record the basis next to each accrual line. When the bill arrives, compare it with the estimate. Small, mixed differences suggest the method works; a difference that runs in one direction month after month means the method needs adjusting. Most teams then clear the accrual with a reversing journal dated the first day of the next month.

When accruals fit into the close

Book accruals after the accounts payable cut-off, once bills received up to month-end have been entered. Accruing earlier risks booking a cost that a bill already covers; accruing later delays the management accounts. A workable order is:

1. Enter bills received up to the cut-off date.
2. Book recurring accruals from the standing list.
3. Collect one-off items from budget holders and open purchase orders.
4. Review the accruals listing against the threshold and the previous month.
5. Approve and post the accrual journals, with reversal dates set.

The same steps sit inside a broader SaaS month-end close checklist.

How ScaleXP prepares month-end accruals

ScaleXP detects costs that need accruals from accounting and operational data, and builds the accrual from draft bills, purchase orders and your Xero or QuickBooks data. It prepares the accrual schedules and journals, and they are posted once finance approves them. When the supplier invoice arrives, it triggers the release of the accrual.

In the ScaleXP demo company below, a bill issued on September 15, 2026 is flagged because its line description implies cost incurred in earlier months, and finance decides whether to add it to the accrual journal.

Accrual journals support Xero Tracking Codes and QuickBooks Classes, so departmental reporting stays intact, and each journal can be traced back to its schedule and invoice. See the ScaleXP accruals page and month-end close automation for the wider close.

Conclusion

Accrue a cost in the month the goods or services are received, using the best evidence available at month-end. A written threshold decides what is worth accruing, a standing list handles recurring costs, and a monthly review with budget holders finds the one-off items. Comparing each estimate with the actual bill shows whether the method still works.

Frequently asked questions

Sources (checked October 2026): IFRS Foundation, Conceptual Framework for Financial Reporting.