Accrued expenses and income: accruals and cut-off at year-end
Accrued expenses (FNP), accrued income (FAE), prepaid expenses and deferred income: how to get year-end cut-off right, allocate each flow to the correct period and protect your result and your tax.
Expert note: This article was written by our chartered accountancy firm. Information is current as of 2026. For a personalised review of your situation, contact us.
Quick answer. Accrued expenses and income attach to the closed period the transactions that economically belong to it, even without an invoice. Goods or services received but not invoiced: FNP (account 408). Delivered but not invoiced: FAE (account 418). This cut-off drives the accuracy of the result, the tax and the financial picture.
At every year-end, the same question comes up in client files: should this expense or this revenue be booked now, or next year? The answer does not depend on the invoice date, but on the period to which the transaction economically belongs. That is the whole point of accrued expenses and income, and of the accounting cut-off at the end of the year.
Handled poorly, this point silently distorts the result, and therefore corporate income tax, as well as the picture given to the bank and the shareholders. Handled well, it produces accounts that withstand an accounting review or a tax audit. Here is how the firm approaches these entries, the accounts to use, the common traps and the special cases.
The principle: independence of accounting periods#
The French general accounting plan rests on a principle that is simple to state and more demanding to apply: the independence (or separation) of accounting periods. Charges and income are attached to the period they concern, regardless of when the invoice is issued or received, and regardless of the payment date.
In practice, four timing mismatches arise at year-end:
- the good or service was received but the supplier invoice has not yet arrived: this is an accrued expense ;
- the good or service was delivered but the customer invoice has not yet been issued: this is accrued income ;
- an expense already booked actually concerns the following period: this is a prepaid expense ;
- income already booked concerns the following period: this is deferred income.
The cut-off work consists of reviewing these four families, entry by entry, so that each euro lands in the right period.
Accrued expenses: the invoice has not yet arrived#
An accrued expense reflects a commitment that already exists: the service or delivery took place before year-end, but no invoice has yet been received. The debt is certain in principle; only the exact amount and due date are estimated. It is recorded so as not to understate the expenses of the period.
The best-known account is 408, for suppliers' invoices not yet received. But accrued expenses are not limited to suppliers: they also concern staff, social bodies and the State.
| Type of accrued expense | Account | Typical example |
|---|---|---|
| Invoices not yet received (suppliers) | 408 | Goods received in late December, invoice in January |
| VAT on invoices not yet received | 4458 | Deductible VAT held pending on FNP |
| Accrued expenses owed to staff | 428 | Bonuses or paid leave due for the period |
| Accrued expenses owed to social bodies | 438 | Social contributions attached to the period |
| Accrued expenses owed to the State | 448 | Tax charges attached but not yet called |
| Accrued interest on borrowings | 1688 | Interest for the period not yet due |
A word on VAT: on an invoice not yet received, the VAT is not yet chargeable or deductible in the usual sense. It is held pending through account 4458, then regularised when the real invoice arrives. Forgetting this and booking a VAT-inclusive amount in 408 is a frequent error.
Accrued income: the invoice has not yet been issued#
Symmetrically, accrued income reflects a service already performed or a delivery already made before year-end, but not yet invoiced to the customer. Failing to record it would understate the turnover and the result of the period.
The central account is 418, for customers whose products are not yet invoiced (the FAE). Other accounts exist for accrued income of a different nature.
| Type of accrued income | Account | Typical example |
|---|---|---|
| Invoices to be issued (customers) | 418 | Engagement completed in December, invoiced in January |
| VAT on invoices to be issued | 4458 | Collected VAT regularised on FAE |
| Staff, income to be received | 4287 | Amounts receivable attached to the period |
| Social bodies, income to be received | 4387 | Social refunds or income attached |
| State, income to be received | 4687 | Grants or tax income attached |
Here too, the corresponding VAT is regularised through account 4458. On an invoice to be issued, prudence requires a clear distinction between the net-of-tax income, attached to the result, and the VAT, which will be collected when the final invoice is issued.
The reverse mismatch: prepaid expenses and deferred income#
The two previous families anticipate a flow not yet invoiced. The reverse mismatch covers transactions already booked but concerning the following period. They are neutralised so as not to wrongly charge or credit the closed period.
| Adjustment | Account | Example |
|---|---|---|
| Prepaid expenses (CCA) | 486 | Insurance premium or rent paid in advance for N+1 |
| Deferred income (PCA) | 487 | Subscription collected in advance covering N+1 |
An annual insurance premium paid in November often covers a large part of the following period. The portion beyond year-end is removed from expenses through account 486. Likewise, a subscription collected in advance for twelve months is reduced by the income not yet earned through account 487.
In practice: the reversal at opening#
A point often misunderstood: these adjusting entries are not permanent. They are reversed at the opening of the following period, when the real invoice is recorded. December's FNP is reversed in January, then the real supplier invoice is booked normally. The net effect on the result of N+1 is thus neutralised, and only the possible estimation gap remains.
Here is the typical sequence for an accrued expense:
- at the N year-end, the received but uninvoiced expense is estimated and booked in 408 (and 4458 for the VAT held pending) ;
- at the N+1 opening, this entry is reversed ;
- when the real invoice arrives, it is booked normally ;
- the gap between the estimate and the real amount naturally falls into the N+1 result.
This mechanism is what justifies careful estimation: too cautious or too optimistic, it simply shifts the mismatch to the following period.
Special cases#
A few situations call for heightened vigilance in client files.
- Multi-year work in progress. A several-month engagement straddling two periods is attached in proportion to completion. The portion performed and not yet invoiced goes into FAE (418), not the entire contract.
- Paid leave and bonuses. Rights acquired by employees for the period, but paid later, are an accrued expense (account 428), with the associated social charges. A payroll consistency check before closing secures these amounts.
- Credit notes to be received or issued. A supplier credit note not yet received, or a customer credit note not yet issued, follows the same attachment logic as invoices.
- Accrued expense or provision for risk? This is the confusion with the heaviest consequences. An accrued expense is a debt certain in principle, of which only the amount and due date are estimated. A provision for risk covers an event uncertain in its occurrence. The two share neither the same account, nor the same treatment, nor the same tax deductibility.
Our view#
In closing files, the most frequent sticking points on cut-off do not come from accounting technique, but from internal organisation: supplier invoices received late, completed services not passed on to the accounting team, prepaid subscriptions never isolated. The quality of cut-off depends as much on good information flow as on mastery of accounts 408 and 418.
The underestimated risk is this: a botched cut-off triggers no immediate alert. The accounts balance, the balance sheet ties out. The problem surfaces later, when an overstated result has generated excessive tax, or when an understated result has distorted a bank file. That is why we treat these adjustments as a key control point of the accounting review, not as an end-of-entry formality.
Key takeaways#
- Cut-off attaches expenses and income to the period they economically concern, without waiting for the invoice.
- Expense received but not invoiced: FNP in 408, VAT pending in 4458; product delivered but not invoiced: FAE in 418.
- Expenses and income already booked but relating to N+1: prepaid expenses in 486, deferred income in 487.
- All these entries are reversed at the opening of the following period.
- Never confuse an accrued expense (certain debt) with a provision for risk (uncertain event).
- A poor cut-off distorts the result, and therefore the tax and the financial picture of the company.
Frequently asked questions
What is the difference between an accrued expense and an invoice not yet received (FNP) ?+
The FNP is a specific category of accrued expense, confined to suppliers and held in account 408. The notion of accrued expense is broader: it also covers debts attached to staff (428), social bodies (438) and the State (448). Every FNP is an accrued expense, but not every accrued expense is an FNP.
Must VAT be booked on an FNP or an FAE ?+
VAT is not chargeable until the final invoice is issued or received. On an FNP as on an FAE, it is held pending and then regularised through account 4458. The amount attached to the result of the period is the net of tax; the VAT follows the real invoice.
When do you book a prepaid expense rather than an accrued expense ?+
The logic is reversed. An accrued expense records a cost of the period not yet invoiced. A prepaid expense (account 486) removes from the period a cost already booked but concerning the following period, such as an insurance premium or rent paid in advance.
Are cut-off entries permanent ?+
No. FNP, FAE, prepaid expenses and deferred income are adjusting entries reversed at the opening of the following period. When the real invoice is recorded, the reversal neutralises the effect of the estimate, and only the possible gap remains in the result of the following period.
Is an accrued expense tax-deductible ?+
An accrued expense corresponding to a debt certain in principle, incurred for the period, is in principle deductible if it meets the general deductibility conditions. The treatment differs from that of a provision for risk, which follows its own rules. Each situation is assessed case by case.
How can you avoid missing accrued expenses at year-end ?+
By organising a systematic review: a list of year-end deliveries and services not yet invoiced, monitoring of contracts paid in advance, and a check of payroll and the related social charges. Regular dialogue between operational teams and accounting makes this census far more reliable than a last-minute catch-up.
What happens if the estimated amount of an FNP is wrong ?+
The gap between the year-end estimate and the real invoice amount falls into the result of the following period, after reversal. A reasonable estimate limits this shift. A very rough estimate does not create a lasting error, but simply moves part of the mismatch to N+1.
Securing your cut-off with the firm#
Are you preparing a year-end and want to make the attachment of your expenses and income reliable? Our firm, registered with the Ordre des experts-comptables d'Île-de-France, builds this cut-off into its bookkeeping and accounting review engagement in Paris and supports directors in financial steering through an outsourced CFO. To go further, see our analyses on closing reinforcement entries and accounting catch-up, the boundary between provisions for risks and charges and their tax deductibility, the depreciation charge and the payroll consistency check before closing.
This article provides general information and does not replace a review of your situation, your documents and the applicable accounting law. A decision specific to your file requires dedicated analysis.
Article written by Samuel HAYOT
Chartered Accountant, registered with the Institute of Chartered Accountants.
Regulated French accounting and audit firm based in Paris 8, built to support companies across France with a digital and decision-oriented approach.
Sources
Official and operational sources cited for this page.
This topic is part of our service Bookkeeping in France | Review, close & tax filing
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