What is Accrual Basis Accounting?
The accrual basis of accounting assumes that revenues are recorded when earned and expenses are recorded when they have been incurred. This is in contrast to the cash basis of accounting, in which you recognize revenues and expenses only when you receive or pay out cash. The cash basis does not give us a timely reporting of when the revenue was really earned or when the expenses were really incurred. Recording revenues and expenses only when we receive or pay out cash does not give us a good matching of revenues and expenses for profit (or loss) measurement purposes. For this reason almost all businesses use the accrual basis, which gives us a good matching of revenues and expenses in the proper month.
As an example of an accounting method that keeps financial accounting up to the minute, accrual basis accounting is perhaps the most commonly used approach to keeping up with income and expenses. Because accrual basis accounting is simply the posting of income and expenses as they occur, rather than deferring the posting until a later date, this form of accounting is the favored method by most businesses. Here are some of the advantages of using accrual basis accounting as your standard mode of managing your finances. As opposed to cash basis accounting, the whole point of accrual basis accounting is to make the recording of the transaction at the time it occurs. This means that sales are recorded immediately, expenses are posted at once, and any other type of transaction goes on the books at the time the event takes place. This is in contrast to some other methods, where the transaction is not actually recorded until payment is made or received. One of the immediate benefits to accrua
