Accrual Basis Accounting

What is Accrual Basis Accounting?

Accrual Basis Accounting is a method of accounting where revenues and expenses are recorded in the periods they occur, rather than in the periods when the cash is received or paid. This method provides a more accurate financial picture of a company's performance and financial position by matching income with the expenses incurred to generate that income.

Short Description: An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur.

• Revenues: Recognized when they are earned, even if cash has not yet been received.
• Expenses: Recognized when they are incurred, irrespective of when the cash is actually paid out.
• Financial Reporting: Provides a more comprehensive view of a company's financial status over specified periods.

This approach is required by generally accepted accounting principles (GAAP) for public companies and is preferred as it offers a more consistent and detailed view of a company's financial activities.