Almanac · 02 · Money · essay
Accruals
Rob Balawender · Editor
You carry the liability when it ships. Open inbound lands cheaper than reality.
You are carrying the liability upon shipping the product, depending on terms. Freight cost is incurred then — not when the carrier feels like invoicing. If your books wait for the invoice, you are running a P&L on whoever mailed you this week.
An accrual is the estimate of that open liability: outbound that has shipped, inbound you have received, invoices that have not arrived or have arrived wrong. Open inbound freight is easy to miss. When you skip it, inventory landed cheaper than reality.
What goes wrong: a quiet week of invoices looks like a good week of freight. A dump of late bills in week three blows the close and trains the CFO to distrust transportation. Companies that skip accruals do not have a timing difference. They have a false month.
What good looks like: outbound can be accrued from the bill of lading, at a rate you already trust. Inbound is accrued when the liability is real (you received it), not when purchasing hopes. The accrual report can be cut by GL, not by “freight, other.”
Picture this
When the freight happened vs when the bill arrived
A useful question in the next finance meeting: of the freight on last month’s P&L, how much was incurred last month, and how much was a carrier catching up? If nobody can split that, the accrual is theater.
See also: GL allocation · Settlement · Audit
When you want that number on your own books: the diagnostic.
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