Accretion

Business, Legal & Accounting Glossary

Definition: Accretion


Quick Summary of Accretion


In accounting, accretion is the change in the price of a bond bought at a discount to the par value of the bond.



What is the dictionary definition of Accretion?

Dictionary Definition


  • in real estate, the increase of the actual land on a stream, lake or sea by the action of water which deposits soil upon the shoreline. Accretion is Mother Nature’s little gift to a landowner.
  • in estates, when a beneficiary of the person who died gets more of the estate than he/she was meant to because another beneficiary or heir dies or rejects the gift. Example: if a brother and sister were supposed to divide a share of Dad’s estate, but the brother doesn’t want it, then sister’s share grows by accretion.
  • in trusts, accretion occurs when a beneficiary gets a surprising increase in benefits due to an unexpected event.
  1. The act of increasing by natural growth; especially the increase of organic bodies by the internal accession of parts; organic growth.
  2. The act of increasing, or the matter added, by an accession of parts externally; an extraneous addition; as, an accretion of earth.
  3. Something added externally to promote growth the external growth of an item.

Full Definition of Accretion


Accretion is an increase in the value of an asset as a result of physical changes (e.g. a growing crop), as opposed to an increase in value pertaining to changes in its price on the market.

In the context of mergers and acquisitions, accretion is referred to as the increase in a company’s earnings per share on a pro forma basis following the transaction. For example, if Company A has $1.00 earnings per share and after acquiring Company B, the combined company’s earnings per share is $1.25, then the acquisition would be referred to as 25% accretive. In contrast, a transaction is dilutive if the earnings per share decreases following the transaction.

In finance, accretion is the change in the price of a bond bought at a discount to the par value of the bond.

Accretion, in a corporate finance environment, is essentially the actual value created after a particular transaction. A deal will always be earnings accretive if the acquirer’s price-to-earnings ratio is greater than the target’s price-to-earnings ratio, including the acquisition premium.

In accounting, accretion expense is the expense created when updating the present value of an instrument. For example, if you originally recognize the present value of a liability at $650, which has a future value of $1000, every year you must increase the PV of the liability as it comes closer to its FV. If the above liability, for example, an asset retirement obligation, had a discount rate of 10%, accretion expense in Yr.1 would be $65 and the PV of the liability at the end of Yr.1 would be $715.


Examples of Accretion in a sentence


The public sector continued to grow through a process of bureaucratic accretion financed by economic growth.


Cite Term


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Accretion. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. October 25, 2020 https://payrollheaven.com/define/accretion/.
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Accretion. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/accretion/ (accessed: October 25, 2020).
American Psychological Association (APA):
Accretion. PayrollHeaven.com. Retrieved October 25, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/accretion/

Definition Sources


Definitions for Accretion are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 5th May, 2020 | 17 Views.