What is Accrual Basis Accounting?

Accrual Basis Accounting (Definition)

Accrual basis accounting is where an income is recorded as soon as it is earned, and expenses are reported as soon as they are made. For a balance sheet, this means receivables and payables are recorded even if no payment has been made yet. Due to the way this system tracks expenses related to a revenue transaction; the income statement reflects the outcomes of operations more accurately than it would otherwise. Product returns, sales allowances, and obsolete inventories can all be recorded in this way. The biggest problem with accrual basis accounting is that the financials may not be completely accurate for the business as there may be transactions recorded that do not match money received by the business.