Non-accruable

Describes something, typically financial or legal, that does not accumulate or become due over a period of time. It signifies an event, cost, or benefit that isn't recognized gradually but instead recognized at a specific point or not at all. It implies a lack of incremental growth or build-up of an obligation, right, or value. This contrasts with accruable items that accrue over time, reflecting an ongoing process of incurring an obligation or realizing a benefit, therefore becoming recordable as revenue or expense within an accounting cycle. The term is commonly applied in accounting and finance, referring to items that are not recognized on an accrual basis.

Non-accruable meaning with examples

• The company determined that the legal fees associated with the recent lawsuit were considered non-accruable. They were uncertain of any immediate legal obligations, so recording the expense on an accrual basis would have been premature, until there was a definitive result or settlement of the lawsuit. Hence, it was deemed appropriate not to recognize these costs until the legal case concluded, regardless of how the case unfolded.
• The company's policy designated bonuses paid to executives as non-accruable until performance targets were met at year-end. This means the liability doesn't build up over the year but becomes due only when the set criteria are satisfied, and the payout is determined. The policy avoided recording contingent liabilities. It aligns incentives, linking compensation directly to the achievement of specified goals to which they should adhere.
• A grant received from a government agency for a specific project was identified as non-accruable. The organization will record revenue only upon completion of the project milestones, instead of incrementally as the project progressed. This avoids overstating revenue before the service is delivered.
• The company decided that certain future warranty expenses would be non-accruable. They estimated the cost and liability for the product warranties as they occurred. Due to uncertainties in potential claims, they would record these expenses in the financial books when actual warranty claims arise. Until then, no warranty expenses are recognized.
• The bank categorized certain potential loan losses as non-accruable until a loss event, or a significant deterioration in the borrower's financial condition was observed. This approach ensures that expenses are only recognized when there is a clear and demonstrable expectation of impairment, rather than estimating them based on general assumptions. This practice maintains the bank's accounting practices.