What is Accruals Accounting?
Accrual accounting (Definition)
Accrual accounting is a method of accounting where transactions are reported in the order in which they occur rather than in the order in which they are paid. It is commonly used for medium to large businesses. Revenue is recognized when it is earned, and expenses are recognized when they are incurred, regardless of whether money is transferred between the parties. For example: if a transaction is made on January 31 and paid on March 5, the sale will be recorded as having occurred on January 31 in the accounting records.
Accrual accounting is best suited for businesses that do not get paid immediately after receiving of the invoice. It is also good for businesses who deal with a significant number of contracts or huge sums of money – it can also help show what businesses owe and what is owed to them. This helps keep track of the full financial situation of a business throughout the fiscal year.