Accrual Accounting Definition

Definition
In this method of recordkeeping, 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.

Expanded 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 they are incurred by the business, not when the product or service is actually paid. Any business which has an inventory of products to sell must use the accrual method of accounting.

Related Blog Article:
An Overview of Accrual Accounting