Accruals and prepaids: 4 month-end steps
In the period lock lesson, the meat supplier's June bill arrived after June was locked, so the caterer recorded it in August. June stayed as approved, but its profit looked higher than it was, and August's lower. The cure is not reopening: before the lock, record what belongs to the month but is unbilled, and spread advance payments over the months they cover. That is the accrual principle: a cost belongs to the month it was used in, not the month of the bill or the payment. Here are 4 steps for every month end.
Example: the caterer closes September
On 28 and 29 September the caterer received 180 kg of meat at SAR 38 a kilo, with no invoice yet. September's electricity bill is not out; August's was SAR 2,100 before VAT. The cooks earned SAR 2,400 of overtime, paid with October salaries. And on 1 September the owner paid a year's kitchen rent, SAR 72,000 before VAT, all booked to September.
Locked like this, September would omit SAR 11,340 of liabilities and carry SAR 66,000 of rent for 11 future months: useless for decisions.
Step 1: accrue what you received but were not billed for
Start from goods received notes, not invoices. Each receipt without a matching invoice is a supplier liability of this month, whether the goods went to stock or were used. Accrue it at the received quantity and the purchase order price: 180 kg × SAR 38 = SAR 6,840. Documented, not estimated: do it first.
Step 2: estimate costs used but not yet billed
Some costs are certain but their amount is not yet known: electricity, water, telecoms, and overtime or commissions paid next month. Give each a written basis: the last comparable bill, a meter reading or the approved timesheet. Set a floor, say SAR 500, and let smaller items wait for their bill.
Step 3: spread prepayments over their months
A prepayment is the reverse: cash goes out before the benefit, as with annual rent, insurance or subscriptions. Book it to prepaid expenses, an asset, then charge each month its share. SAR 72,000 for 12 months puts SAR 6,000 in September and leaves SAR 66,000, released at SAR 6,000 a month until August 2027. Write the schedule once, on payment day.
| Item | Type | Basis | SAR |
|---|---|---|---|
| Meat received, not invoiced | Accrual | Receipt note and PO price | 6,840 |
| September electricity | Estimated accrual | August bill | 2,100 |
| Cooks' overtime | Accrual | Approved timesheet | 2,400 |
| Kitchen rent | Prepayment | 72,000 ÷ 12 months | 6,000 |
Step 4: clear the accrual with the bill, in the current month
When the bill arrives, match it to its accrual instead of booking a new cost, which would charge it twice. Any difference goes to the current month, never by reopening the locked one: the lock lesson's rule. If an item is often far off, review its basis.
Record accruals before VAT. Article 49(7) of ZATCA's VAT Implementing Regulations (official Arabic text) allows input VAT to be deducted only with evidence, normally the supplier's tax invoice, so record it with the invoice. See input VAT deduction.
Running it from WhatsApp
Owner: Get September ready to lock
System: 3 items first: 180 kg of meat received on 28 and 29 September with no invoice, SAR 6,840 at the PO price. September electricity is not billed yet; August's was SAR 2,100. And SAR 72,000 of annual rent is all booked to September. Record both accruals and move SAR 66,000 to prepaid at SAR 6,000 a month?
Owner: Yes, and add the cooks' overtime, 2,400 per the timesheet
System: 4 entries dated 30 September; rent scheduled to August 2027. September is ready to lock.
Accountant (5 October): Meat invoice photo: SAR 6,840 plus 1,026 VAT
System: Matched to the accrual for the same receipt note, so no new cost in October. SAR 1,026 recorded as input VAT; the supplier is now owed SAR 7,866.
Accountant (12 October): September electricity: 2,260 before VAT
System: Accrued 2,100, so SAR 160 goes to October. Locked September is unchanged.
More on accounting in Arabic from your phone.
Checklist before each month-end lock
- Does every receipt note have an invoice, or an accrual at the PO price?
- Are unbilled costs above your floor estimated on a written basis?
- Is every prepayment an asset with a schedule?
- Was each bill matched to its accrual, with the difference in the current month?
- Was input VAT taken from the tax invoice, not the accrual?