What type of adjustment would accrual represent on the Statement of Financial Position (SFP)?

In the context of the Statement of Financial Position (SFP), accruals represent liabilities. This is because an accrual occurs when an entity recognizes expenses or income that have been incurred or earned but not yet paid or received.

For example, if a business incurs an expense for services received but has not yet paid for those services by the reporting date, it records an accrual to recognize this obligation. This adjustment ensures that the financial statements reflect the true financial position of the entity, indicating that the business has a liability to pay.

Accruals are critical in adhering to the accrual basis of accounting, which requires that transactions are recorded in the period they occur, regardless of when cash is exchanged. Thus, on the Statement of Financial Position, accruing expenses leads to a corresponding increase in liabilities, effectively portraying the outstanding amounts owed by the business.