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Accrual definition
Accrual is an accounting method that records revenue when it is earned and expenses when they are incurred, rather than when cash changes hands. It gives a clearer picture of financial performance within a set period.
Under accrual accounting, a business records revenue at the point it earns it, even if the customer pays later. It records an expense at the point the cost is incurred, even if it settles the bill later. Each entry is dated to the period the activity belongs to, not the period the money moves.
Accrual accounting differs from cash accounting: accrual records activity when it happens, while cash accounting records it only when money is received or paid. Accrual lines up revenue with the expenses that produced it, so the figures track economic activity rather than bank movements.
Accrual Example
A company provides services worth USD 5,000 in March and receives payment in April.
Under accrual accounting, the company records the USD 5,000 as revenue in March, because that is when the work was completed.
The cash arrives in April, but the revenue belongs to the March accounting period.
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