Glossary · Accounting
Accrual accounting
Also called Accrual basis
Accrual accounting records revenue when it is earned and costs when they are incurred, regardless of when cash changes hands.
Under accrual accounting, an invoice is revenue when the work is delivered and billed, not when it is paid. Until then, it sits in accounts receivable. Expenses work the same way.
It gives a truer picture of performance than cash accounting, and it is required for most companies under IFRS and US GAAP. Its blind spot is cash: a business can be profitable on paper while its bank account empties, because revenue is booked but not collected.
That gap is exactly what receivables management closes. Profit under accrual accounting becomes cash only when invoices are paid.
Example
A firm invoices €50,000 in December, payable in January. Under accrual accounting that is December revenue, even though the cash arrives the next year.