What is accrual basis of accouting?

Question

Accepted Answer

Accrual basis of accounting recognizes revenue and expenses when they are earned or incurred, regardless of when payment is received or made.

Revenue is recognized when it is earned, not when payment is received
Expenses are recognized when they are incurred, not when payment is made
This method provides a more accurate picture of a company's financial health
Example: A company provides services in December but doesn't receive payment until January. Under accrual accounting, the revenue is recognized in December when the services were provided.
Example: A company incurs expenses in December but doesn't pay the bill until January. Under accrual accounting, the expenses are recognized in December when they were incurred.

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