On the debit side we have entered the £1,800 for the bills already paid. We then make another debit of £200 for the accrued expense, and post it as “Balance c/d” (any balance c/d figure must be brought down later to the other side of the account). The other side of the double entry is to credit the accruals account by £200 (not shown because it is soon cleared out - see later).
Accrual increases expense by £200
Notice the entry for £2,000 on the credit side. This simply shows the amount being transferred to the profit and loss account - an expense in this case. The step of writing out a profit and loss account as a “T” account like this is normally omitted and the data is simply transferred to the final format as it will appear in the financial statements.
Clearing Accruals account
The other side – the credit entry in the accruals account – is cleared out as soon as the balance sheet has been written. We would do this by debiting the accruals account and crediting the electricity account. This is done in a single step by bringing the balance of £200 to the credit side of the electricity account, where it forms the opening balance for the new period. So we never need to actually set up a "T" account for accruals - we just need to add up all the "Balance c/d" values to get the total accruals.
Next periods expense is reduced by £200
Finally, notice that having an opening balance on the credit side, has the effect of reducing the amount of expense charged to the profit and loss account next year by £200. This should be intuitive, because that £200 was part of the year just finished, and has nothing to do with the following year’s expenses. It just means that when we receive the bill for £600, the expense is offset by £200.