Accrual Accounting Definition | Short and Extended Definitions

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Accrual Accounting Definition

In accrual accounting, income is reported when it has been earned and expenses when they have been incurred. It is commonly used in businesses that carry inventories of items available for sale or distribution, but can be used by other business structures.

Accrual accounting is also known as accrual basis accounting.

Accrual Accounting Extended Definition
Operating under the accrual method of accounting, income must be tracked and reported to the Internal Revenue Service (IRS) as it is earned, even when payment has not been received from the customer.

Expenses are tracked and reported to the IRS as the business incurs them, not when the product or service is actually paid. Any business with an inventory of products to sell must use the accrual method of accounting.

Related Article
An Overview of Accrual Accounting | Patriot Software

Last Updated By

wpengine | Feb 23, 2023

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