Accrual Method

Definition

• In business accounting, the accrual method refers to reporting income in the year it was earned along with any expenses incurred, rather than reporting the income and expenses when payment is received or made. For example, if you renovated a basement and billed the customer in December 2004, the amount you charged is reported in 2004 as income even if the customer did not pay until the following year. Also, if you own a business that keeps an inventory, you are also required to use this method of business accounting.

Synonyms
book keeping method, accumulation

Alternate Spellings
Cash Method, Accounting Method

Related Terms and Acronyms

• Accounting Method — Definition,
  • The method used by a business or individual to keep records. Most individuals and small businesses use the cash method, although businesses that maintain inventory are required to use the accrual method. See also "Accrual Method" or "Cash Method."
• Cash Method — Definition,
  • The form of accounting in which you report income in the actual year you receive it and deduct expenses in the year you pay. Most individuals use this method. Under this system, if you built a deck and billed the client in December 1999 but didn't receive the cheque until January 2000, it would be counted as 2000 income, not 1999.