Accruals and deferrals make sure expenses and revenues fall into the period they truly relate to, regardless of when the money actually moves. In double-entry accounting this is done through a dedicated account group — prepaid and accrued expenses, deferred and accrued revenue (accounts 381 to 385 in the Slovak chart). Using them correctly decides whether the profit figure reflects reality, and most errors appear right at the turn of the year.
What are accruals and deferrals and why does accounting insist on them?
Double-entry accounting rests on the accrual principle: an expense or revenue belongs to the period it relates to, not the period in which a payment came in or went out. Accruals and deferrals put this principle into practice by shifting amounts into the correct year, so the result is not distorted by the random timing of payments.
The condition is that you know three things at once: the nature of the item, the exact amount and the period it concerns. If any of these is missing, it is not a true accrual but an estimated item. The setting where these rules apply is double-entry bookkeeping, which we place in context in our overview of Slovak tax and accounting advisory.
Which accounts are used?
Group 38 is reserved for accruals and deferrals. Prepaid expenses (381) and complex prepaid expenses (382) capture money you have already paid but which is an expense of a future year; accrued revenue (385) covers revenue you have already recognised even though the cash arrives later. These three are asset accounts.
By contrast, accrued expenses (383) and deferred revenue (384) are liability accounts. Account 383 records an expense that belongs to this year but will be paid later; account 384 records cash you have already received although the revenue belongs to a future period. Knowing which one to reach for is the core of the whole mechanism.
When to use prepaid versus accrued expenses?
The key is whether the payment or the expense runs ahead of the year. Use prepaid expenses (381) when you pay in advance: insurance, rent or a software subscription paid for next year is booked as a claim on the future and released into expenses only in the period it covers.
Accrued expenses (383) are the mirror image: the expense belongs to this year but you pay later. Example: December rent paid in February, or a commission for a job finished in December but invoiced in January. Revenue works symmetrically — a prepaid annual membership is booked through deferred revenue (384) and released into income gradually.
How do estimated items differ from accruals?
A common confusion: if at year-end you know an expense arose but do not know its exact amount, it is not an accrual but an estimated item. The classic case is an unbilled energy supply at 31 December — consumption is clear, the invoice has not arrived, and you estimate the figure. Such an expense goes through an estimated-payable account, not through 381 or 383.
The rule is simple: exact amount known → accrual; amount only estimated → estimated item. Mixing the two is a recurring mistake. Either way the goal is the same — to assign the expense or revenue to the correct year, which is what makes professional accounting worth its fee.
What errors appear at the turn of the year?
Most mistakes surface at the year-end close, when it is decided what still belongs to the closing year. A frequent one is ignoring prepaid costs — insurance, rent, domains — that the company dumps entirely into the year of payment even though they also cover the next period. The result is understated profit in one year and overstated profit in the next.
The opposite error is just as common: failing to book an expense that belongs to the year simply because the invoice has not arrived. This is exactly where an accrued expense or an estimated item belongs. Correct accruals are what make the financial statements a faithful picture of the business; without them the numbers mislead even when every document is formally correct.
When can you skip accruals and deferrals?
Not every item needs to be split. Accounting applies a materiality principle: small, regularly recurring amounts that would distort the true picture only negligibly need not be resolved across periods. Splitting a tiny recurring subscription over two years would create more admin than value.
Accruals and deferrals in this sense also do not apply to single-entry bookkeeping, which works on the basis of actual receipts and payments. Where exactly the materiality line sits is a matter of judgement — and that is precisely where advice from an accountant who knows your industry pays off.
Unsure what still belongs to the closing year and what to the new one? A wrong cut-off costs businesses a distorted result and needless tax adjustments. We will review your year-end expenses and revenues, set up accruals, deferrals and estimated items correctly and prepare statements that hold up.
FAQ
What is the difference between accounts 381 and 383?
Account 381 (prepaid expenses) is used when you pay in advance and the expense belongs to a future year, such as insurance paid up front. Account 383 (accrued expenses) is the opposite: the expense belongs to this year but you pay it later, such as December rent settled in February.
When should I use an estimated item instead of an accrual?
Use an estimated item when you know the nature and period of an expense or revenue but not its exact amount — typically an unbilled energy supply at 31 December. If you know the exact amount, it is an accrual booked through accounts 381 to 385.
Does a small company have to time-resolve every item?
No. Accounting applies a materiality principle, so small and regularly recurring amounts that distort the true picture only negligibly need not be resolved across periods. Single-entry bookkeeping is not concerned with time resolution in this sense at all.