Fa Accrual Schedule

Accrual Schedule

When to use

Use this to build the accrual for a recurring fund expense — management fee, fund administration fee, audit or tax-prep fee, directors' fees, insurance — so the NAV expenses it smoothly over the period instead of taking a lumpy hit when the invoice lands. Also use it to true up an existing accrual when the invoice, rate, or asset base changes.

Not for: allocating a booked expense across share classes or investors (that is a series/equalization task), or explaining why the accrued figure moved period over period (hand that to fa-variance-commentary). This produces the schedule and the entry, not the commentary.

Method

1. Define the accrual. Name the expense, the agreement clause it comes from, the rate or fixed amount, the base it applies to, and the accrual frequency (daily for a daily-NAV fund, monthly otherwise).
2. Pick the day-count and base convention. Decision point: management fees usually accrue on NAV or committed/invested capital using Actual/365 (or Actual/360 for some debt-style vehicles); fixed fees (audit, admin minimum) accrue straight-line over the service period. Get the base right — gross assets, net assets, or NAV-before-fee changes the answer.
3. Compute the periodic accrual. For a rate: base × rate × (days / day-count basis). For a fixed fee: annual amount ÷ periods. Watch the circularity — a management fee charged on net assets depends on the fee itself; solve it (NAV_pre-fee × rate) or iterate.
4. Post the accrual entry. Dr expense, Cr accrued-expense liability, each accrual period.
5. True up on invoice or reset. When the actual invoice arrives, Dr accrued liability, Cr cash for the payment; book any difference between accrued-to-date and invoiced amount to the current period (a catch-up), and reset the go-forward accrual if the rate or estimate changed.
6. Reconcile the liability. The accrued-expense balance must equal accrued-to-date minus paid-to-date. Decision point: if the liability doesn't tie, either an accrual period was missed or a payment hit the wrong account — trace before you close.
7. Roll forward. Carry the ending liability and the go-forward rate into the next period's schedule.

Example

$120M net-asset fund, management fee 1.50%/yr on net assets, daily NAV, Actual/365, month of April (30 days). Daily accrual ≈ 120,000,000 × 0.015 × (1/365) = $4,931.51/day; April accrual ≈ $147,945. Because the fee is on net assets it is charged on NAV-before-fee each day, so as NAV drifts the daily figure moves — recompute per day, don't multiply one day by 30. Audit fee is a fixed $60,000 for the year → accrue $5,000/month straight-line regardless of NAV. When the admin invoices $61,500 for the year (a $1,500 increase), true up the under-accrual as a current-month catch-up and reset the monthly accrual to $5,125.

Pitfalls

• Circular management fee. Charging the fee on net assets after the fee double-counts; charge on NAV-before-fee or solve the fixed point.
• Wrong day-count. Mixing Actual/365 and Actual/360, or forgetting a leap day, produces a small persistent drift that an auditor will footnote.
• Straight-lining a usage-based fee. Admin fees with per-transaction or per-holding components are not flat — accrue on the driver, not on twelfths.
• Ignoring the expense cap. If the fund has an expense ratio cap with a fee waiver/reimbursement, accrue the capped expense and book the manager's waiver receivable; accruing the gross fee overstates expenses and understates NAV.
• Lumpy true-ups hitting one investor. A large catch-up on a daily-NAV fund penalizes whoever holds on that day; size accruals so true-ups stay immaterial.

Output format

Expense: <name> | Agreement clause: <ref>
Basis: <rate/fixed> | Base: <gross/net/commitment> | Day-count: <Act/365...> | Frequency: <daily/monthly>
Period: <start–end> (<days> days)
Accrual this period: <$>  [formula shown]
Entry: Dr <expense acct> / Cr <accrued-liability acct>  <$>
Accrued-to-date: <$> | Paid-to-date: <$> | Liability balance: <$>  [ties: Y/N]
True-up / reset: <catch-up $, new rate>
Go-forward accrual: <$/period>

Reference

Accrual accounting principle

An accrual matches expense to the period that consumed the service, independent of when cash moves. Each period: Dr expense / Cr accrued liability. At payment: Dr accrued liability / Cr cash. The liability is a running balance of "recognized but not yet paid," and it must always equal accrued-to-date − paid-to-date. Over- and under-accruals are corrected prospectively as catch-ups unless material enough to restate.

Management-fee mechanics

• Base: committed capital (common in closed-end/PE during the investment period), invested/NAV capital (post-investment period and most hedge funds), or gross vs net assets. The LPA / offering document dictates which.
• Formula: fee = base × annual_rate × (days / day-count). Daily-NAV funds accrue every valuation day on that day's applicable base.
• Net-asset circularity: a fee on net assets is self-referential. Standard practice charges it on NAV before the current-period fee accrual, avoiding an iterative solve; some agreements specify the iterative net figure — read the clause.
• Day-count conventions: Actual/365 (fixed), Actual/360, and 30/360 are the common bases; the wrong one creates a systematic drift (Act/360 accrues ~1.4% more than Act/365).

Expense caps, waivers, and the expense ratio

Many funds cap the total expense ratio (TER). When gross expenses exceed the cap, the manager waives fees or reimburses the fund: accrue the net (capped) expense, and record the waiver as a contra to management-fee expense with a corresponding receivable from the manager if reimbursable. Some caps are subject to recapture — the manager can claw back prior waivers within a window (often 3 years) if the fund later runs under the cap; track the recapturable balance off-ledger.

Common fund accruals and their driver

Prepaid vs accrued

A prepaid (paid before consumed) amortizes an asset to expense: Dr expense / Cr prepaid. An accrued (consumed before paid) builds a liability. Insurance paid annually in advance is a prepaid; an audit fee billed after year-end is an accrued. Getting the sign of the balance-sheet item right is the tell that you understood the timing.

Materiality and NAV impact

Express the accrual's daily NAV impact in basis points and cents-per-share. A true-up that moves NAV by more than ~1 bp on a daily fund should be investigated before posting, because it means the ongoing accrual rate was wrong, not just late. Keep individual accrual estimates tight enough that catch-ups never distort a single day's NAV.