Accrual
Accrual is an accounting term that refers to the recognition of revenue or expenses before they are actually received or paid. It is an important concept in accounting because it allows businesses to recognize revenue and expenses in the period in which they are earned or incurred, rather than when the cash is actually received or paid. This allows businesses to better match their income and expenses to the period in which they are earned or incurred, which is important for accurate financial reporting.
History of Accrual
The concept of accrual accounting has been around since the early days of accounting. It was first developed in the late 19th century by the American accountant Charles H. Sprague, who is credited with introducing the concept of accrual accounting to the United States. Since then, the concept has been adopted by many countries around the world and is now the standard accounting method used by most businesses.
Accrual accounting is based on the concept of matching revenues and expenses to the period in which they are earned or incurred. This is in contrast to cash-basis accounting, which only recognizes revenues and expenses when cash is actually received or paid. Accrual accounting is considered to be more accurate and reliable than cash-basis accounting, as it provides a more accurate picture of a company’s financial performance.
Comparison Table
| Accounting Method | Revenue Recognition | Expense Recognition |
|---|---|---|
| Accrual | When earned | When incurred |
| Cash-basis | When received | When paid |
Summary
Accrual is an important concept in accounting that allows businesses to recognize revenue and expenses in the period in which they are earned or incurred, rather than when the cash is actually received or paid. This allows businesses to better match their income and expenses to the period in which they are earned or incurred, which is important for accurate financial reporting. For more information about accrual accounting, you can visit websites such as Investopedia, AccountingCoach, and the Financial Accounting Standards Board.
See Also
- Cash-basis Accounting
- Matching Principle
- Revenue Recognition
- Expense Recognition
- Double-entry Bookkeeping
- Accrued Liabilities
- Accrued Expenses
- Accrued Revenue
- Deferred Revenue
- Deferred Expenses
