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Methods

Accrual basis accounting

Accrual basis accounting generally records income when earned and expenses when incurred.

Reviewed by the Booksmrt bookkeeping teamLast reviewed 2026-07-27

How it works in the books

Accrual records separate business activity from the date cash moves. This provides visibility into receivables and payables, but requires more complete cutoff and supporting schedules.

Example

A December service invoice paid in January is generally recorded as December revenue under the accrual method.

What can go wrong

Accrual reports can show profit while cash is tight because earned revenue may still be uncollected.

Compare Accrual basis accounting

Cash basis vs. accrual basis accountingCash basis is simpler and generally records receipts and payments when cash moves. Accrual basis records economic activity when earned or incurred, creating receivables and payables. Tax rules and reporting needs can limit the choice.

Sources

Educational information only. Booksmrt provides bookkeeping services, not tax, legal, audit, or investment advice. Confirm material accounting and tax decisions with the appropriate professional.