Accruals might sound like an accounting buzzword, but they’re the silent force shaping how businesses and individuals track financial reality in Australia. As we move into 2025, understanding accruals isn’t just for accountants — it’s essential for anyone making financial decisions, running a business, or even managing personal investments. Here’s what you need to know about accruals, their role in modern finance, and how recent regulatory tweaks could affect you.
What Are Accruals and Why Do They Matter?
In simple terms, accruals refer to the practice of recording income and expenses when they’re earned or incurred, not when cash actually changes hands. This is the backbone of the accrual accounting method, which gives a more accurate picture of a company’s (or individual’s) financial position than the cash method.
- Revenue Accruals: Recognising income when it’s earned, even if payment hasn’t arrived yet.
- Expense Accruals: Recording costs when they’re incurred, not necessarily when they’re paid.
For example, if you’re a tradie who finishes a job in June but doesn’t get paid until July, accrual accounting means you record the income in June — not July. This approach matters because it aligns revenues and expenses to the periods in which they actually occur, giving a truer snapshot for financial planning, tax, and reporting.
Accruals in 2025: New Rules and Real-World Impacts
This year, the Australian Accounting Standards Board (AASB) has introduced several clarifications around accruals, aiming to tighten reporting accuracy and improve transparency. For businesses, these changes mean:
- More rigorous timing rules for recognising income from contracts and long-term projects. This is especially relevant for sectors like construction, consulting, and software.
- Enhanced disclosure requirements around accrued expenses, particularly employee benefits and supplier obligations.
- Closer alignment with international standards, making it easier for Australian firms to attract global investment.
For individuals, especially those running side hustles, small businesses, or trusts, these shifts could influence:
- Tax obligations: Accrual-based reporting can accelerate when you need to recognise income, potentially affecting your taxable income for the year.
- Loan applications: Banks and lenders often prefer accrual-based financials for a clearer assessment of ongoing financial health.
- Investment analysis: Investors and analysts use accruals to spot trends that pure cashflow figures might obscure, such as growing receivables or mounting payables.
In 2025, the ATO has also updated its guidance on deductibility of accrued expenses, with tighter documentation requirements for deductions claimed but not yet paid. Keeping accurate, timely records is more important than ever.
How to Manage Accruals Like a Pro
Whether you’re managing your own books or working with an accountant, here are practical steps to ensure accruals work in your favour:
- Stay on top of invoices and bills. Set reminders to record income when it’s earned, and log expenses as soon as you commit to them, not just when you pay.
- Use digital tools. Cloud accounting platforms like Xero and MYOB are updated to reflect the latest 2025 standards, making it easier to track accruals automatically.
- Review your financials monthly. Accruals can reveal early signs of cashflow challenges or growth opportunities that you might miss with a cash-based approach.
- Check compliance with new policies. With the AASB and ATO tightening rules, ensure your record-keeping and reporting match current expectations — or risk penalties and audit headaches.
Real-world example: A Melbourne-based marketing consultancy switched to accrual accounting last year and discovered that delayed payments from clients were masking an underlying cashflow crunch. By focusing on accruals, they renegotiated payment terms and stabilised their finances, avoiding a potential liquidity crisis.
Conclusion: Accruals Are the Key to Smarter Financial Decisions
Accruals may be behind-the-scenes, but their impact is front and centre in 2025. Whether you’re a business owner, investor, or just looking to sharpen your financial toolkit, understanding accruals will help you see the real story behind the numbers. With updated rules and digital tools, there’s never been a better time to get accrual-savvy.
