Accrual basis
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Accounting basis under which revenues and expenses are recognized when earned or incurred, regardless of cash timing.
Accrual basis in plain English
Accrual basis is a way of keeping score that records income and costs WHEN THEY ACTUALLY HAPPEN, not when the cash moves. The idea is to match the story to reality: if you earned money in December, it belongs in December's results even if the customer pays you in January. Picture a magazine you sell a full-year subscription to in January for $120 — you collect all the cash now, but you only truly "earn" $10 each month as you deliver an issue. This gives a truer picture of how a business is really doing than just watching the bank account, which is why almost all serious companies use it.
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