What is Accrual accounting?
Accrual accounting: Recording income and costs when earned or incurred, not when cash moves.
Where Accrual accounting fits
Accrual accounting is part of Bookkeeping Basics in Accounting. Bookkeeping records every transaction in a ledger. Accrual accounting records revenue when earned and costs when incurred, not when cash moves.
Practical tip
Record promptly, keep invoices and reconcile monthly.
Related terms
- Invoice
- A bill sent to a customer listing what they owe.
- Fiscal year
- A 12-month period used for accounting and taxes.
- Retained earnings
- Profit kept in the company instead of paid out.
- Gross profit
- Revenue minus the direct cost of what was sold.
- Ledger
- The book that records all of a company's accounts and transactions.
Formulas you will use with it
Test yourself
Which term means: “Recording income and costs when earned or incurred, not when cash moves.”?
Fiscal year · Accrual accounting · Retained earnings
Answer: Accrual accounting
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