GIPHY / istock / getty

What Is Accruing?

When something accrues, it grows or accumulates over time. In finance, accruing often refers to interest earned (such as on a loan or bank account), income or debts. You may also want to pay attention to accrual accounting, which affects how your investments report revenue and liabilities. 

Understanding accruing in finance

Accruing is the act of something—in this case, money—accumulating over time. For instance, if your savings account pays out APY quarterly, your money accrues interest during the three months between each payout. 

When financial assets or liabilities (debts) accrue, they build up over time and are paid or received later. Many businesses rely on “accrual accounting” to balance their books and accurately report income and debts. 

What is accrual accounting?

Accrual accounting involves recording revenue and expenses when transactions (not payments) occur. This differs from cash accounting, which only records transactions at the time when money changes hands. 

Accrual accounting paints a more holistic view of a company’s finances and ensures they record transactions in the appropriate period. The SEC promotes accrual accounting in Generally Accepted Accounting Principles (GAAP).

The SEC requires that publicly traded firms report GAAP data in their earnings reports. Some companies may report both GAAP and non-GAAP data. 

What this means for you

Most investors don’t need to understand accrual accounting beyond reading a company’s GAAP data come earnings season. But accruing in your own financial life is another story. 

Accruing interest

If you invest or stash money in a savings account, you’re probably accruing interest. 

Most of the time, interest-bearing accounts pay out every one, three, six or 12 months. But interest often accrues daily, even if you can’t access it yet.

Common investments that accrue interest include:

  • Coupon-bearing (interest-paying) bonds
  • Savings accounts
  • Certificates of deposit (CDs)

On the other hand, companies can accrue interest against you. For instance, if you owe money on a loan or credit card, your debt accrues interest between payments. If you don’t pay off that interest, it may even add to your principal and increase your debt. 

Accruing income

Accrued income is any earnings on your investments or time that you haven’t yet received. 

For instance, interest accruing on your savings account qualifies as accrued income. 

And if your employer pays out for hours already worked, then every hour spent on the clock accrues income you’ll receive later. By that metric, you can think of every hour worked in advance of your paycheck as accrued income.  

Ultimately, accruing investment income is a great way to steadily build long-term wealth and fight inflation. Conversely, paying off accruing expenses keeps your interest payments to a minimum.

If you want to increase your accruing potential (and let’s be honest, who doesn’t?), Q.ai can help. Our AI-backed investment app allows you to capitalize on your money’s potential and accrue long-term wealth to secure a happier, more profitable future.

Disclosures

Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly-owned subsidiary of Quantalytics Holdings, LLC ("Quantalytics"). Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC ("QAI"), an SEC-registered investment advisor. QIA’s investment advisory services are ONLY available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The content in this newsletter is for informational purposes only and does not constitute a comprehensive description of Q.ai's investment advisory services.

Hands-free approach to investing

Our AI manages your money with commission-free, institutional-grade, AI-powered investment kits.