What is accrual accounting?


Accrual accounting (definition)

Businesses that count how much cash they have – and what invoices are owed – are doing accrual accounting.

Accrual basis accounting looks beyond your immediate cash situation to acknowledge money that will be coming or going from the business. The alternative is cash accounting, which simply counts cash that has already come or gone.

Accrual accounting is harder to do but it provides a more accurate long-term view of finances. Some investors and lenders prefer to deal with businesses that use the accrual basis of accounting. Tax offices may also require certain types and sizes of businesses to use it.

 

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