What is Balance Sheet Accrual Review?
Definition
Balance sheet accrual review is the finance control used to verify that accrued liabilities, accrued assets, and related accrual balances are accurate, supported, and still valid at the reporting date. It focuses on accruals recorded on the Balance Sheet rather than only the expense or revenue impact in the income statement. The review supports the Accrual Basis of Accounting by confirming that obligations and economic rights are recognized in the correct period, even when invoices, payments, or settlements happen later.
How Balance Sheet Accrual Review Works
During the period-end close, finance teams review accrued expense accounts, accrued revenue accounts, goods received not invoiced balances, tax accruals, payroll accruals, bonus accruals, and other estimate-based balances. The reviewer checks whether each balance is supported by contracts, purchase orders, service confirmations, tax schedules, payroll reports, supplier statements, or management estimates.
The review usually compares current balances with prior periods, expected reversals, invoices received after close, and account-level reconciliations. It is a key part of Balance Sheet Review because accrual balances can directly affect liabilities, working capital, profit timing, and reporting accuracy.
Common Accrual Balances Reviewed
Accrued expenses: Vendor, utility, service, lease, payroll, and bonus costs incurred but not yet paid.
Accrued revenue: Revenue earned but not yet invoiced or billed to customers.
Tax accruals: Income tax, payroll tax, sales tax, VAT, GST, or withholding tax obligations.
GRNI balances: Goods received from suppliers where invoices have not yet been posted.
Intercompany accruals: Group charges, shared service fees, royalties, or cross-entity allocations.
Reversal balances: Prior accruals that should clear when actual invoices or settlements are recorded.
Calculation and Review Method
A practical review formula is: Net accrual movement = Closing accrual balance - Opening accrual balance. Percentage movement can be calculated as: Net accrual movement / Opening accrual balance × 100. This helps finance teams identify unusual increases or decreases that require explanation.
For example, if the opening accrued expense balance is $420,000 and the closing balance is $525,000, the net accrual movement is $525,000 - $420,000 = $105,000. The percentage movement is $105,000 / $420,000 × 100 = 25%. If the company’s review threshold is 10%, the movement should be explained with supporting schedules, invoices, or operational drivers.
Worked Example
Assume a company reviews its quarter-end accrued liabilities account. The Working Capital Opening Balance for accrued expenses was $1.2M, and the Working Capital Closing Balance is $1.6M. The increase is $400,000, or 33.3%. Finance investigates and finds that $250,000 relates to completed consulting services, $90,000 relates to utilities consumed before quarter-end, and $60,000 relates to payroll taxes.
The reviewer confirms that each accrual has support, belongs to the current period, and has an expected clearing path. The balance is approved because the increase is explained by real obligations rather than unsupported estimates. This strengthens Balance Sheet Integrity and helps management understand the impact on working capital.
Role in Reconciliation and Close Controls
Balance sheet accrual review is closely linked to Balance Sheet Reconciliation. The reconciliation should show the opening balance, new accruals, reversals, invoice clearings, adjustments, and closing balance. Each material item should have a preparer, reviewer, support file, aging status, and explanation for why it remains open.
Finance teams also perform Analytical Review (Journal Entries) to identify unusual accrual postings, late adjustments, large manual entries, or accounts with unexpected movements. This helps confirm that accrual balances are complete, reasonable, and aligned with the company’s close calendar and approval rules.
Business Impact
A strong balance sheet accrual review improves financial reporting because accrued balances affect liabilities, working capital, and profit timing. If accruals are understated, obligations may be missing and profit may appear higher than supported. If accruals are overstated, liabilities may appear higher and future expenses may be released when balances are cleared.
The review also supports cash visibility because accrued liabilities often become future payments. Finance teams may use the review in Working Capital Performance Review to understand short-term obligations, supplier payment timing, and cash flow needs. In leadership discussions such as a Monthly Business Review (MBR) or Quarterly Business Review (QBR), clean accrual explanations help connect accounting balances with operating activity.
Best Practices
Define review thresholds by account, entity, cost center, and reporting risk.
Require support for all material accrual balances and manual adjustments.
Review aged accruals to confirm whether balances should remain open or be cleared.
Compare accrual movements with prior periods, budgets, forecasts, and actual invoices.
Document expected reversal dates and clearing evidence for major accruals.
Include material accrual balances in close certification and management reporting.
Summary
Balance sheet accrual review checks whether accrual balances are accurate, supported, current, and properly reconciled at the reporting date. It helps finance teams validate liabilities and assets, explain movements, clear old balances, and strengthen close controls. When supported by reconciliations, analytical review, thresholds, and documentation, balance sheet accrual review improves cash flow visibility, reporting accuracy, and business performance analysis.
