Word: Accrual Basis
Part of Speech: Noun
Definition: The "accrual basis" is a method of accounting that records financial transactions when they are earned or incurred, rather than when money is actually received or paid. This means that if you do a job in one month but get paid for it in the next month, you record the income in the month you did the job, not when you received the payment.
Usage Instructions:
You typically use "accrual basis" in contexts related to accounting or finance.
It is often contrasted with "cash basis," another method of accounting where transactions are recorded only when cash changes hands.
Example:
A company using the accrual basis will record $1,000 of revenue in January when the service is completed, even if the customer pays $1,000 in February.
Advanced Usage:
Financial Reporting: Companies that follow Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) usually must use the accrual basis for their financial statements to provide a more accurate picture of their financial position.
Tax Implications: Some businesses may choose to use the accrual basis for tax purposes, especially if they have inventory or sales that span multiple periods.
Word Variants:
Accrual (noun): Refers to the amount that has been earned or incurred but not yet received or paid.
Accrue (verb): The act of accumulating or increasing over time, often in terms of interest or benefits.
Different Meanings:
Synonyms:
Idioms and Phrasal Verbs:
Summary:
The accrual basis of accounting helps businesses and organizations track their financial performance more accurately by recording transactions when they occur rather than when cash is exchanged.