Definition

Noun: A method of accounting in which revenues and expenses are recorded in the financial statements in the period they are earned or incurred, regardless of when the associated cash is actually received or paid. This provides a more accurate picture of a company's financial performance and position during a specific time period.

Usage

The accrual basis is the standard accounting method required for most businesses under Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). It contrasts with the cash basis of accounting.

Examples

• Noun:
  • The company prepares its financial statements on an accrual basis, so December's sales are recorded in December even if the customer pays in January.
  • Under the accrual basis, an expense for utilities is recorded when the service is used, not when the bill is paid.

Advanced Usage

• "on an accrual basis": This phrase is commonly used to specify that financial records are kept using this method.
  • The firm's income statement is prepared on an accrual basis.
• "accrual basis accounting": The full term for the system or practice.
  • Accrual basis accounting is essential for matching revenues with related expenses.

Variants and Related Words

• Accrual (n): An individual item of revenue earned but not yet received, or an expense incurred but not yet paid.
  • The balance sheet shows accruals for salaries payable.
• Accrue (v): To accumulate or receive (revenues) or to incur (expenses) over time.
  • Interest continues to accrue on the loan.
• Accrual Accounting (n): Synonymous with "accrual basis accounting."

Synonyms

• Accrual accounting
• Matching principle accounting (refers to the core concept within accrual accounting)

Antonyms

• Cash basis: An accounting method where revenues and expenses are recorded only when cash is received or paid.
  • A small freelance business might use the cash basis for its simplicity.

Related Phrases and Concepts

• Revenue recognition principle: The accounting principle that dictates the conditions under which revenue is recorded, which is a cornerstone of the accrual basis.
• Matching principle: The accounting principle that expenses should be recorded in the same period as the revenues they helped to generate, which is fundamental to the accrual basis.

Noun

1. a method of accounting in which each item is entered as it is earned or incurred regardless of when actual payments are received or made