How to Record Accruals in Xero (and Where It Falls Short)

Xero is excellent for day-to-day bookkeeping, but accruals — expenses incurred but not yet invoiced — require manual effort every month. Unlike bank transactions or bills, accruals have no source document, so Xero will never pick them up automatically. You have to post a manual journal to recognise the expense, then reverse it when the invoice arrives.

What Is an Accrual in Xero Terms?

An accrual is a liability you owe at the balance sheet date for services or goods already received but not yet billed. Common examples: legal fees where the work is done but the invoice has not arrived, electricity charges not yet billed, contractor time completed in the period, and payroll for days worked but not yet paid.

Step 1: Identify What to Accrue

At month-end, go through your open purchase orders, recurring contracts, and any services you know were delivered but for which you have not received an invoice. Your goal is to capture every significant expense that falls in the current period. Materiality thresholds vary — many teams only accrue items above £500 or £1,000 to keep the process manageable.

Step 2: Post the Accrual Journal in Xero

In Xero, go to Accounting > Manual Journals > New Journal. Date the journal to the last day of the period. Debit the relevant expense account and credit your "Accrued Expenses" liability account (typically in the Current Liabilities section of the chart of accounts). Add a description that identifies the supplier and the period — for example, "Accrue legal fees — June 2026".

Step 3: Reverse the Accrual Next Month

When the invoice arrives in the following month, you need to reverse the accrual so the expense is not double-counted. In Xero, open the original manual journal and click "Reverse" — this creates an equal and opposite journal dated the first day of the next period. Then code the actual invoice to the expense account as normal.

Where Xero Falls Short for Accruals

• No tracking of which accruals have been reversed — easy to miss or double-reverse
• No reminder system — you must remember to reverse each accrual next month
• No audit trail showing who approved the accrual or why the amount was chosen
• No comparison of accrued amount vs actual invoice — no way to see your estimate accuracy
• Recurring accruals (monthly payroll, utilities) must be re-entered manually every period

A Dedicated Accruals Tool Alongside Xero

CloseKit is building a direct Xero integration that will let you manage accruals in CloseKit and push the journal entries to Xero automatically. You will be able to track which accruals are open, which have been reversed, and see the full history — without leaving CloseKit. The integration is coming soon.