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Accrual Accounting

Accrual Accounting is a type of accounting system in which revenue and expenses are recorded as they happen—even if money has not actually changed hands. Records are kept based on when income is earned and when expenses or debts are incurred.

This means your business bookkeeping would record $100 in income when a job occurs, rather than when the client pays for the job. Likewise, your business would record $100 of supplies as an expense when the supplies are ordered, even if you haven't yet paid for the supplies. Accrual Accounting ensures that your books reflect when your business takes an action that spends or receives money—not the date the money was taken from or added to your bank account.

Accrual Accounting is the standard accounting practice of most businesses, and it is legally required if a business has sales of over $5 million per year and/or they keep any kind of inventory of merchandise that is sold to customers.

Many small businesses that aren't required to use Accrual Accounting use Cash Accounting instead.