What is accrual accounting?

Accrual accounting is an accounting method that records revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid. It provides a more complete picture of financial performance than cash accounting.

Example: A company completes work in December but receives payment in January. Under accrual accounting, the revenue is recorded in December when it was earned.

Related terms: Cash vs Accrual, Deferred Revenue, Accrued Expenses