A method of accounting that tracks revenues and expenses as they are incurred. Accrual Basis Accounting conforms to the Generally Accepted Accounting Principles (GAAP) and stands in contrast to Cash Basis Accounting, which records income and outflows as cash is spent and received. |
In simpler terms, Accrual Basis accounting will record an item as an expense if a firm incurs debt that is to be paid off at a later date; it will likewise assume an item as revenue if a counterparty agrees to pay the firm on a later occasion. This is unlike the Cash Basis Accounting method, which ignores pending inflows and outflows of cash and instead records them when cash is received and paid out.
