True-Up

Some people write it as one word — trueup — or drop the hyphen and write true up; all three point at the same adjustment, and none of the spellings changes what it does.

Why estimates need correcting in the first place

Accrual accounting requires you to record revenue and expenses in the period they’re actually earned or incurred — not the period the cash happens to move. The problem is that closing the books on a fixed monthly schedule and knowing every real number at the exact moment you close are two different things, and they frequently don’t line up. A utility bill for the last week of the month hasn’t arrived yet. A payroll tax liability depends on a filing that isn’t finalized. An annual insurance premium is billed on an estimate of payroll that won’t be confirmed until the policy year ends.

Rather than delay the close and wait for every bill to land — which would make monthly financial statements permanently late — the standard practice is to record a reasonable estimate at close, then true up the difference once the actual figure is confirmed. The estimate keeps the books current and useful. The true-up is what keeps them accurate.

This is a completely ordinary part of monthly bookkeeping, not a sign that something went wrong. A true-up of zero would actually be the unusual outcome — it would mean an estimate landed exactly on the real number, which happens by chance more than by precision. The size of a true-up says more about how far an estimate can drift than about anyone’s competence at estimating it.

The mechanics of a true-up journal entry

A true-up doesn’t re-record the original transaction — it posts the difference between what was estimated and what turned out to be true. That difference, sometimes called the variance, is the entire entry.

If the actual figure is higher than the estimate (you owe more, or earned more, than you booked), the true-up adds to what’s already recorded:

• Debit the expense or receivable account
• Credit the liability or revenue account
• For the shortfall — the amount you underestimated

If the actual figure is lower than the estimate (you owe less, or earned less, than you booked), the true-up reverses part of what’s already recorded:

• Debit the liability account
• Credit the expense account back
• For the amount you over-accrued

In formula terms: true-up amount = actual figure − previously recorded estimate. A positive result debits expense and credits the liability; a negative result debits the liability and credits expense back. The sign of the variance decides which side of the entry each account lands on — the mechanic itself doesn’t change.

Worked examples, in US dollars

All figures below are illustrative, built to show the mechanic rather than to represent a benchmark for what your numbers should look like.

Payroll tax accrual

At month-end, $8,200 of employer payroll tax is accrued for December payroll, before the processor finalizes the run. The confirmed liability comes back at $8,340 — $140 higher.

• Debit Payroll Tax Expense $140
• Credit Payroll Taxes Payable $140

Property tax

A business accrues $1,000 a month ($12,000 for the year) toward an annual property tax bill. The actual bill arrives at $11,400 — $600 less than accrued.

• Debit Property Tax Payable $600
• Credit Property Tax Expense $600

Utility accrual

The electric bill’s cycle doesn’t align with month-end, so $2,000 is accrued for the unbilled days. The actual invoice, once it arrives, is $2,180 — $180 more.

• Debit Utilities Expense $180
• Credit Utilities Payable $180

Workers’ comp insurance audit

A workers’ comp premium is billed on estimated annual payroll of $500,000, for a $15,000 premium. The year-end audit — standard on most workers’ comp policies — finds actual payroll of $560,000, and the correct premium was $16,800, or $1,800 more.

• Debit Insurance Expense $1,800
• Credit Insurance Premium Payable $1,800

Revenue share / royalty

A licensor accrues a 5% quarterly royalty against a licensee’s estimated $200,000 in sales — $10,000. The licensee’s confirmed actual sales come in at $214,000, for a true royalty of $10,700, or $700 more.

• Debit Royalty Receivable $700
• Credit Royalty Revenue $700

True-up vs. reconciliation vs. adjusting entry vs. correcting entry

These four terms get used interchangeably in casual conversation, and conflating them is exactly where confusion tends to start. Each describes a different step:

Term	What it is	Triggered by
Reconciliation	Comparing two independent records to confirm they agree	Routine, usually monthly
Adjusting entry	Any period-end entry that brings the books up to date under accrual accounting	Every close, accrual basis
True-up	Correcting an accurate estimate to the confirmed actual figure	Once the real number is known
Correcting entry	Fixing a mistake — wrong account, wrong amount, wrong period	An error, found at any time

Put together: reconciliation is usually how you discover that a gap exists and what the correct number actually is. A true-up is the entry you post once you know that number — and it’s a type of adjusting entry, alongside other period-end entries like straight-line depreciation that were never estimates to begin with, so they can’t be “trued up” at all. A correcting entry is different in kind rather than degree: it fixes something that was wrong from the start, not something that was a reasonable placeholder waiting on real data. If a $500 utility accrual was estimated in good faith and the real bill came in at $540, that’s a true-up. If that same $500 was accidentally posted to the wrong account entirely, that’s a correcting entry, and it can happen — and get fixed — on any day of the year, not just at close.

When a small business actually encounters one

For most small businesses, true-ups show up quietly inside a normal monthly close rather than as a separate event: payroll tax accrued a few days before the processor confirms the exact figure, a utility bill that lands after the books have already closed for the month. Neither requires any special handling beyond posting the variance once the real number is in.

The more noticeable one is the annual workers’ comp or general liability insurance audit, which most policies with an audit provision require every year. If your payroll came in higher than what the policy was estimated on — which is common for a growing business — expect an additional premium bill and a true-up to match it. Revenue-share or royalty arrangements are rarer for a typical small business, but the mechanic is identical whichever side of the agreement you’re on.

If a true-up shows up in your reports without an explanation attached, that’s a process gap worth asking about — it should read as a routine line with a plain-English note about what it was for. That’s part of what’s included in monthly bookkeeping: accruals recorded on a fixed schedule, true-ups posted as the real numbers arrive, and a summary that says what changed and why. If your books have gone long enough without this that estimates and actuals have drifted apart in ways nobody’s tracked, that’s a catch-up bookkeeping project rather than a one-line fix, and it’s a common enough starting point that there’s no reason to be embarrassed about it.