Accrual accounting recognizes revenues when earned (regardless of cash receipt) and expenses when incurred (regardless of cash payment) — matching income with the period that generated it. GAAP and IFRS require accrual basis. A SaaS company sells a 1-year subscription on January 1 and collects $12,000 upfront. Accrual: recognize $1,000 revenue monthly; $11,000 sits as deferred revenue. Cash: recognize $12,000 in January. Accrual provides more accurate profitability picture but masks cash position — hence the separate cash flow statement. Small businesses under $30M revenue can elect cash basis for simplicity, but accrual is preferred for investor reporting.
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Accrued Expense
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Balance Sheet
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Accrual Accounting
August 22, 2026 · Aditya Gupta
Accounting
Related terms
Accounts Payable
Accounts Payable (A/P) is money a company owes to suppliers for goods or services received but not yet…
Accounts Receivable
Accounts Receivable (A/R) is money owed to a company by customers for goods or services delivered on credit.…
Accrued Expense
An accrued expense is a cost recognized in the income statement before cash is paid — recorded as…
Amortization
Amortization is the systematic allocation of intangible asset cost over its useful life — analogous to depreciation but…
Audit
An audit is an independent examination of a company's financial records, internal controls, and statements — typically conducted…
Balance Sheet
The balance sheet is a financial statement showing a company's assets, liabilities, and equity at a specific point…
