Accrual basis accounting is a method of recording financial transactions that recognizes revenue and expenses when they are incurred, regardless of when payment is received or made. This means that revenue is recognized when it is earned, even if payment has not yet been received, and expenses are recognized when they are incurred, even if payment has not yet been made. This method provides a more accurate picture of a company’s financial health, as it reflects the company’s current obligations and future cash flows. Accrual basis accounting is often used by larger companies and is required by generally accepted accounting principles (GAAP) for publicly traded companies. It allows for better financial planning and decision-making, as it provides a more complete and accurate view of a company’s financial position. However, it can also be more complex and time-consuming than cash basis accounting, which records transactions when payment is received or made. Overall, accrual basis accounting is an important tool for companies to accurately track their financial performance and make informed business decisions.
