Accrual Accounting

What is Accrual Accounting?

Accrual accounting is a method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash actually changes hands. This approach provides a more accurate picture of a company’s financial health during a specific period.

Why It Matters

• It matches revenues with the expenses used to generate them, following the matching principle.

• Investors and lenders prefer this method as it shows long term profitability more clearly than cash flows.

• It is required for most businesses that exceed a certain size or are publicly traded.