GlossaryAccounting & Bookkeeping
Accrual Accounting
Also called: accrual basis, mercantile basis
What is Accrual Accounting?
Accrual accounting records income when it is earned and expenses when they are incurred, regardless of when money changes hands. A December sale paid in February is December's income.
Why Accrual Accounting matters
Accrual gives a truthful picture of a period's performance. Cash-basis records make a month look brilliant simply because an old invoice was finally paid.
How Accrual Accounting works in practice
It requires adjusting entries at period end for accrued expenses, prepayments and income earned but not billed. That work is exactly what makes month-on-month comparison meaningful.
Frequently asked questions
Accrual for management reporting once there is credit involved; the statutory position depends on entity type and turnover.