What is accrual accounting?

Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs vs. when payment is received or made. The method follows the matching principle, which says that revenues and expenses should be recognized in the same period. Accrual accounting uses the double-entry accounting method.

What is the difference between cash basis accounting and accrual accounting?

While accrual accounting is the most widely used accounting method, some businesses prefer to use cash basis accounting. is an accounting method in which revenue is only recorded when cash is received, and expenses are recorded after cash payments are made. The main difference between accrual and cash accounting is transactions are recorded.

When is revenue recognized in accrual based accounting?

In accrual-based accounting, revenue is recognized when it is earned, regardless of when the payment is received. This means that if a company provides a service to a customer in December, but does not receive payment until January of the following year, the revenue from that service would be recorded in December, when it was earned.

What is an example of an expense accrual?

The effect of this journal entry would be to increase the utility company's expenses on the income statement, and to increase its accounts payable on the balance sheet. Another example of an expense accrual involves employee bonuses that were earned in 2019, but will not be paid until 2020.