Management Glossary

  Search Results: accrual basis
accrual basis
A method of accounting whereby revenues are recognized when they are earned regardless of when the cash is received. For example, when a company charges clients for work on an hourly basis, billed in full at the completion of the work, if the job is only partly finished at the end of the fiscal year the financial statements would account for the completed, but not yet billed, portion of the work in an income account that may be called "work in progress". Likewise, if work has been completed and invoiced, but the invoice has not yet been paid, the invoice amount would still be included as income and would also appear in an account called "Accounts Receivable". Under accrual basis accounting expenses are also shown in the financial statements to have been incurred only when the benefit has been received. For example, if an annual premium on an insurance policy is paid in the middle of the fiscal year, the full amount would still come out of the "cash" asset account, but only half of it would accounted for under an expenses account. The other half would appear in an asset account with a name like "prepaid expenses."
Contributed by: ManagerWise Staff
See: cash basis

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