An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged.
Under accrual accounting, transactions are recorded when the economic event occurs, not when payment is received or made. This method provides a more accurate picture of a company's financial position than cash-basis accounting. It follows the matching principle — expenses are matched to the revenues they help generate in the same period. Accrual accounting is required under GAAP and IFRS for most businesses.
A software company delivers a ₹12,00,000 annual subscription in January. Under accrual accounting, it recognizes ₹1,00,000 as revenue each month — not the full amount when cash is received.
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In accrual accounting, transactions are recorded when earned/incurred. In cash accounting, they are recorded only when cash changes hands. Accrual gives a more accurate financial picture but is more complex.
Yes, for most businesses above a certain size. Under Indian Companies Act, GAAP, and IFRS, accrual accounting is mandatory. Small businesses and freelancers may use cash-basis accounting.
The net amount of cash and cash equivalents moving into and out of a business during a specific period.
The accounting principle that determines when and how revenue is recorded in the financial statements, based on when it is earned rather than when cash is received.
An accounting principle that requires expenses to be recorded in the same period as the revenues they help generate, ensuring accurate profit measurement.
A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
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