Define: Accrual Accounting Method

The accrual accounting method is used to track money for tax purposes by recording debts or expenses when they occur, rather than when money is received or paid out. This differs from the cash-basis accounting method, which only considers money that has been received or paid out. Additional accounting methods include cost accounting, fair-value accounting, and the percentage-of-completion method.

The accrual accounting method is a system used for tax purposes to determine income and expenses. It records debits and credits when the liability occurs, rather than when the income or expense is received or paid. This method is also known as the accrual basis. On the other hand, the cash-basis accounting method only considers cash received as income and cash paid out as an expense. For instance, if a business receives payment for a service in January but provides the service in February, the income would be recorded in February under the accrual accounting method, but in January under the cash-basis accounting method. Another accounting method, the percentage-of-completion method, recognises revenue gradually as a project is completed. For example, if a construction company is building a house for a client, revenue would be recognized as the project progresses, rather than all at once when the project is finished. These examples demonstrate the differences between the accrual accounting method and other methods, such as the cash-basis accounting method. The accrual accounting method focuses on when the liability occurs, rather than when the income or expense is received or paid.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 17th April 2024.