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.

Should I use cash or accrual accounting?

Most businesses can choose between cash and accrual accounting methods. However, if an inventory is necessary to account for your income or your company’s income is over $25 million, the IRS will require you to use the accrual method.

What are the different types of accrual transactions?

Various types of accrual transactions can be found in the book of businesses but according to the accrual accounting basics, they fall under either expense accruals or revenue accruals. Accounting on an accrual basis gives an apt financial overview of the company and provides a detailed image of the receivables and payables in real time.

What are accruals & deferrals?

Accruals and deferrals are the basis of the accrual method of accounting. This is the preferred method of accounting according to GAAP. Accruals are created by adjusting journal entries at the end of each accounting period.