Definition
Accrual basis accounting records revenue when it is earned and invoiced, and expenses when they are incurred, regardless of when cash changes hands. Under accrual accounting an invoice counts as revenue on its invoice date, and the unpaid amount sits in accounts receivable until the client pays.
Also called: Accrual accounting
Accrual basis in practice
The alternative, cash basis accounting, records revenue only when payment is received. Accrual gives a truer picture of performance; cash basis is simpler and common for very small businesses.
Frequently Asked Questions
Does the invoice date matter under accrual accounting?
Yes. The invoice date determines the period in which revenue is recognized, which affects your financial statements and often your tax return.