Finance term
Accrual Accounting
Recording activity when it happens
Definition
An accounting basis that records revenue when earned and costs when incurred, regardless of when cash moves.
In more detail
Accrual accounting shows the economic activity of a period rather than its bank movements, which is why a profitable business can still run short of cash.
The alternative, cash basis, is simpler and is permitted for smaller entities in many jurisdictions. Which basis applies is a regulatory question, not a preference.
Glossary entries are general explanations, not advice. Where a term appears in a contract or policy, the definition in that document governs.