Accrual Accounting

What Is Accrual Accounting?

Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash transactions occur.

Key Takeaways

  • Definition: An accounting method that records revenues and expenses when they occur. 
  • Purpose: To provide a more accurate picture of a company’s financial position. 
  • Contrast: Differs from cash accounting, which records transactions only when cash changes hands.

Benefits of Accrual Accounting

  1. Accuracy: Provides a more accurate financial picture by matching revenues with related expenses. 
  2. Compliance: Required by GAAP and IFRS for most businesses. 
  3. Financial Insight: Offers better insight into a company’s performance over time.

Key Concepts in Accrual Accounting

  • Revenue Recognition Principle: Revenues are recorded when earned. 
  • Matching Principle: Expenses are recorded when incurred to generate revenues.

Importance of Accrual Accounting

Accrual accounting is crucial for understanding a company’s long-term financial health, as it includes all earned revenues and incurred expenses, offering a complete view of financial performance.


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