What is accrual accounting

Accrual accounting is a method of accounting that recognizes revenue and expenses when they are incurred, regardless of when the cash is actually received or paid. This means that revenue is recognized when it is earned, and expenses are recognized when they are incurred, regardless of when the cash transactions actually occur. In accrual accounting, revenue is recorded when it is earned, which is typically when the goods or services are delivered. This is in contrast to cash accounting, where revenue is recorded when the cash is actually received. Similarly, expenses are recorded when they are incurred, not necessarily when the cash is paid. This allows for a more accurate reflection of the financial performance of a business, as it matches revenues and expenses to the period in which they are earned or incurred. Accrual accounting provides a more complete and accurate picture of a business's financial position and performance, as it takes into account all of the revenue and expenses that have been earned or incurred, even if the cash transactions have not yet occurred. This method is widely used in businesses and organizations, as it provides a more accurate reflection of financial performance over time. However, it also requires careful record-keeping and management of accounts receivable and accounts payable to ensure that all transactions are properly recorded.