What is accrual accounting?
Accrual accounting records income and expenses when they are earned or incurred, not when cash is received or paid. This provides a more accurate view of financial performance.
Why do businesses use accrual accounting?
It reflects the true financial position of a business over time. Investors and regulators prefer accrual accounting because it matches revenue with related expenses.
How does accrual accounting work?
If a business delivers a service, it records revenue even if payment arrives later. Similarly, expenses are recorded when incurred, not when paid.
What is the difference between accrual and cash accounting?
Accrual accounting records transactions when they occur. Cash accounting records transactions only when money moves. Accrual provides long term insight, while cash focuses on liquidity.
Is accrual accounting required?
Many jurisdictions require accrual accounting for larger businesses and public companies due to its accuracy and transparency.