It's the last day of the month. The utility bill hasn't come in yet, so you book your best guess. About a week later the real bill shows up, and it's $140 higher than your guess. Now what?
You book a true-up. If you've searched "true up in accounting" or "true up meaning" because a reviewer asked for one, this is the entry they meant. It's a kind of adjusting journal entry, and true-up accounting is easy to get sloppy with. This glossary entry covers the meaning, three worked examples, and how to document one.
What is a true-up in accounting?
A true-up is an adjusting entry that replaces an estimate with the actual amount once the actual is known. You booked $1,200 for a utility bill at month-end. The real bill says $1,340. The true-up books the $140 difference, so total expense for that bill equals the $1,340 actual; entering the bill against the accrual clears it. True-ups show up at month-end, at year-end, when a vendor invoice lands, and after an insurance premium audit.
- A true-up books the difference, not the whole amount: a $1,200 estimate and a $1,340 bill means a $140 entry.
- In the strict sense it fixes an estimate, not a mistake: in practice people say "true up" for any entry that brings a balance back to its support, but an error is really a correcting entry, and the difference decides which period it lands in.
- The direction can go either way: if the actual comes in lower, the true-up reduces the expense instead.
- A true-up leaves the accrual equal to what's owed: a $24,000 bonus accrual trued down to a $21,000 approved bonus leaves $21,000, and the payout takes it to $0.
- Write down the estimate, the actual and its source, the difference, and the period: a reviewer should be able to rebuild the entry from your memo line alone.
- All numbers in this guide are illustrative: round figures chosen to show the mechanics, not benchmarks.
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Get startedAccrual books run on estimates. You record expenses in the month they belong to, even when the bill hasn't arrived. That's the whole point of accrual accounting. But an estimate is a placeholder. When the real number shows up, the placeholder has to go.
The true-up is how it goes. You compare what you booked to what you now know. Then you post a journal entry for the gap. People use "true up" outside the ledger too, like when a contract settles an estimated fee against the final count. The idea is the same: estimate first, settle to actual later.
Two nearby entries get mixed up with it:
- Reversing entry. Some firms reverse the whole accrual on day one of the next month, then book the real bill in full. The net effect matches a true-up. It's just a different path to the same number.
- Correcting entry. This fixes an error, like a bill posted to the wrong account. Nothing about it was an estimate.
If you need a refresher on which side goes up, see debits and credits. Expenses go up with a debit. Liabilities go up with a credit.
Illustrative numbers. On January 31, the utility bill hasn't arrived. You book an accrued expense of $1,200.
On February 8 the bill arrives for $1,340. January is already closed. So you enter the bill, clear the accrual, and let the $140 gap land in February.
Check it: $1,200 + $140 = $1,340. Debits equal credits. The utilities accrual is back to $0. The $140 line is the true-up. The rest is the normal bill entry.
The reversing-entry path gets you to the same place. On February 1 you debit accrued expenses $1,200 and credit utilities expense $1,200. On February 8 you book the full bill: debit utilities $1,340, credit accounts payable $1,340. February utilities nets to $1,340 minus $1,200, which is $140. Same answer.
Illustrative numbers. A client pays $6,000 up front for a 12-month workers' comp policy. You book it as a prepaid expense and expense $500 a month.
That $6,000 is itself an estimate. The carrier set it from the payroll the client expected to run. After the term ends, the carrier audits actual payroll and bills or refunds the difference. Say payroll ran higher and the audit bill is $900. That's the true-up:
If the audit shows a refund instead, flip it. Debit a receivable from the carrier and credit insurance expense.
Compare that to a different problem. After seven months, the amortization schedule says $2,500 should be left ($6,000 minus 7 × $500). The ledger shows $3,000, because one month's entry never got posted. The fix is the same shape (debit insurance expense $500, credit prepaid insurance $500). Many reviewers would still call it "truing up prepaid to the schedule." Strictly, though, nothing was estimated. A step got missed, so it's a correction of an error, and it follows the error rules below rather than the change-in-estimate rules.
Illustrative numbers. Withholding and employer payroll taxes are left out to keep the mechanics clear. In practice you'd accrue the employer taxes on the bonus too, true those up the same way, and pay the bonus net of withholding. A client plans a year-end staff bonus. You accrue $2,000 a month.
After 12 months, accrued bonuses holds $24,000. In December the owner approves $21,000. You accrued $3,000 too much. The December true-up reduces the accrual by the extra $3,000:
When payroll pays the bonus in January:
Check it: $24,000 − $3,000 − $21,000 = $0 left in accrued bonuses. Bonus expense for the year is $24,000 minus $3,000, which is $21,000. That's the approved amount.
Timing matters here. If the owner only confirms the number in early January, before you close December, the true-up still goes in December. The approval settles the amount of a bonus the company already owed at December 31, and you learned it before the books closed, so the year-end number should reflect it.
A true-up in accounting can come up at several points in the year:
- Month-end close. Any accrual from last month that now has a real bill behind it. This is part of a normal month-end close process.
- When the vendor invoice lands. You can true up the moment the bill is entered instead of waiting for month-end.
- Quarter-end and year-end. Bonus and commission accruals often get trued up here.
- After an insurance premium audit. Like the workers' comp bill above.
- After an outside review. A CPA or auditor may propose year-end adjustments. Some are true-ups of estimates. Others are corrections of errors, and those follow the correcting-entry rules instead.
What if the period is already closed? For a month you've already closed and reported, a true-up is a change in an estimate, so it goes in the current period. You don't reopen January because the utility bill came in $140 high. Year-end is different. If the actual arrives before the year's financial statements or tax return are final, and it relates to something that existed at year-end, it usually belongs in that year, which is what Example 3 does. Errors are a separate question: whether you fix them in the current period or go back and restate depends on how material the error is.
Put four things in the memo line: the estimate (with its entry number), the actual and its source, the difference, and the period it lands in. Then attach the bill or report behind the actual. Here's a line you can copy:
True-up: Jan utilities accrual. Est. $1,200 (JE 01-31). Actual $1,340 per invoice #___ (received 2/8). Difference $140 booked to Feb.
Then check the balance you just cleared. The accrued expenses account should tie out to its supporting schedule, and this bill's line on that schedule should now be $0. If either doesn't hold, something else is off, and you need to find it.
One more rule. A true-up needs a known estimate and a known actual. If money moved and you can't say what it was, that's not a true-up. Park it in a suspense account and find the source first.
Growthy doesn't decide your true-ups for you. It categorizes bank activity automatically from QuickBooks Online or a CSV import, and you review and approve each call. The estimate, the actual, and the judgment about which period gets the difference stay with you.
Estimates are fine. Leaving them in the books after the real number shows up is not. When the bill arrives, book the difference, write down where the number came from, and check that the accrual clears.
Related: Tick and Tie · Topside Entry
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Growthy is bookkeeping software, not a CPA firm. This content is educational, not professional advice.
