Business, Legal & Accounting Glossary
A system of accounting in which revenue is recognised when they are earned and expenses as they are incurred.
The accruals concept is a basic accounting concept that is used in the preparation of both profit and loss accounts and a company’s balance sheet.
Accrual accounting differs from cash accounting, which recognises transactions when cash has been either received or paid.
When using accrual accounting methods in the preparation of an accounting periods financial statements, there will inevitably be some uncertainty or estimations involved in respect to transactions.
An accounting method that tries to match the recognition of revenues earned with the expenses incurred in generating those revenues. It ignores the timing of the cash flows associated with revenues and expenses.
An example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee, not when the cheque is actually written. The disadvantage of this method is that you pay tax on revenue before you’ve actually received it.
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Definitions for Accrual Accounting are sourced/syndicated and enhanced from:
This glossary post was last updated: 27th January, 2019