What is Accrual Accounting?

[danisjohn]

I am trying to learn about accrual accounting and how it works. I read that it records income and expenses when they are earned or incurred, not when cash changes hands. Can someone explain this in simple terms with an example so I can understand it better?

 

[Shane Warne]

Accrual accounting is a method where income and expenses are recorded when they are earned or incurred, not when cash is actually received or paid. This approach gives a more accurate picture of a company’s financial health, matching revenues with related expenses during the same accounting period.

 

[brook]

In accrual accounting, income and expenses are recorded on the time they are earned or incurred and not on the time cash is received or paid out. It gives a better financial understanding and makes businesses manage their plans by aligning revenues to corresponding costs.

 

[Jarwish]

Accrual accounting records revenues and expenses when they are earned or incurred, regardless of cash flow, providing a more accurate financial picture of a company's performance over a period.

 

[denjoshep]

Accrual accounting is a method where income and expenses are recorded when they are earned or incurred, regardless of when cash is received or paid. It provides a more accurate picture of a company’s financial health by matching revenues with related expenses in the same accounting period.

 

[erwinsmith]

Accrual accounting is an accounting approach in which revenues and expenses are recognized as the revenues or expenses are earned or incurred but not necessarily when the cash is received and paid.

For example:

The revenue is reflected on the books of accounts when a service has been given and not in terms of the receipt of payment.

Expenses are not recorded to be paid, but to be incurred.

The technique provides a better representation of the financial health of a company as opposed to cash accounting.