Skip to main content

Accrual Method Accounting

Accrual Method Accounting (Definition)​

Accrual method accounting is a system of accounting where revenues and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged. This method provides a more accurate picture of a companys financial health by matching revenues with related expenses.

Key features of accrual method accounting include:

  1. Recognition of revenue when earned, not when cash is received
  2. Recording of expenses when incurred, not when paid
  3. Use of accounts receivable and accounts payable
  4. Compliance with Generally Accepted Accounting Principles (GAAP)
  5. Required for larger businesses and public companies
  6. Allows for better financial forecasting and analysis 7. More complex than cash basis accounting but offers a more comprehensive financial view Accrual method accounting is essential for businesses seeking to understand their true financial position and performance over time.