Accrual Basis Accounting

Beginner 💰 Finance / Accounting

Definition

Recording revenue when you earn it and expenses when you incur them, regardless of whether you've actually seen the money. It's accounting for optimists who believe invoices will eventually be paid.

Example Usage

We switched to accrual basis accounting to get a more accurate picture of our financial health.

Origin

Formalized as standard accounting practice in the early 20th century.

Fun Fact

The opposite (cash basis) is what your grandmother probably used for her checkbook—it's simpler but way less accurate.

Source: Generally Accepted Accounting Principles (GAAP)

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