Accrual basis


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Accrual basis

In the context of accounting, practice in which expenses and income are accounted for as they are earned or incurred, whether or not they have been received or paid. Antithesis of cash basis accounting.

Accrual Accounting

A system of accounting that recognizes revenue and matches it with the expenses that generated that revenue. Unlike other systems of accounting, which recognize revenue and expenses in the order in which they are received, the accrual accounting convention ignores the function of time and only considers what expenses generate what revenues, even if payments have not actually been made. Companies with inventories are required to use the accrual method for tax purposes.
References in periodicals archive ?
Students realize that the difference between the cash basis and accrual basis is the treatment of these other assets and liabilities.
The 1951 version recommended that government financial reports should also reflect current condition and operations in accordance with sound accounting principles, and it stated that "modifications" of the accrual basis were an accrual basis if the more important revenues and expenditures were accrued.
Modified accrual basis approach is defined as method under which revenues are recognized in the period they become available and measurable, and expenditures are recognized in the period the associated liability is incurred.
Not surprisingly, most CPAs advocate the accrual basis of accounting for organizations that are either growing quickly or have a multitude of financial issues that can't be properly reflected under cash accounting.
It improves financial reporting by (a) adopting for all voluntary termination benefits recognition requirements similar to those in NCGA Interpretation 8, (b) establishing guidance applicable to involuntary termination benefits that requires governments, in financial statements prepared on the accrual basis of accounting, to account for the effects of termination benefits in the period in which the employer becomes obligated to provide benefits to terminated employees, and (c) elaborating on measurement issues associated with all forms of termination benefits.
The GFOA's recommended practice recognizes that FCA requires the gathering of cost information for solid-waste management operations on an accrual basis.
At a minimum, though, the case does not stand for the proposition that a service taxpayer that keeps its books on the accrual basis is prohibited from using adjusting entries to convert to the cash basis for tax purposes.
McMahon, vice president of finance and administration at the San Francisco-based Pacific Maritime Association and chairman of FEI's Committee on Employee Benefits, believes it would be senseless to switch the PBGC's accounting to an accrual basis at a time when its financial reporting systems are "in disarray.
The 9th Circuit agreed section 267(a)(2) disallowed a deduction by an accrual basis payor until the tax year in which the payee included the amount as income.
B neither altered its overall accounting plan for income and deductions on an accrual basis, nor changed its basic accounting system for depreciation.
Also, conventional wisdom tells us that accrual basis accounting is vastly superior to cash basis accounting.