accrual


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Related to accrual: accrual basis, Accrual 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.

accrual

an expense which is outstanding at the end of a trading period and which needs to be included in the accounting results for the period. For example, an unpaid INVOICE for car repairs would be included in the expenses of the trading period in calculating profits, since the repair costs relate to that period; the unpaid bill is counted as a liability of the firm at the period end, and afterwards until it is paid, and is added to CURRENT LIABILITIES in the firm's BALANCE SHEET. See PREPAYMENT.
References in periodicals archive ?
Nelson, 2003, Management of the Loss Reserve Accrual and the Distribution of Earnings in the Property-Casualty Insurance Industry, Journal of Accounting and Economics, 35: 347-376.
Dichev, 2002, The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors, The Accounting Review, 77(Supplement): 35-59.
Dichaw Dichoo studied the role of accruals in order to measure the companies' performance better in a time series.
In their research Francis et al state that accruals are the diagnostic criteria for the ambiguity existed in the company's future cash flow.
When converting from the cash basis income to accrual basis income, depreciable assets are treated essentially the same as prepaid expenses because depreciable fixed assets represent long-term prepayments (deferrals).
See Table 7a for the resulting accrual basis income statement.
According to Lev and Nissim (2006), accrual anomaly is not eliminated in the function of systematic structural factors that prevent investors from consistently forming profitable strategies to exploit accrual anomaly, thus restricting the opportunity for arbitrage.
This is probably because (1) managers engage in accrual manipulation and real activities manipulation at the same time and (2) some manipulation methods, for example abnormal production costs, have a positive effect on abnormal accruals and a negative effect on abnormal CFO, at the same time that they reduce discretionary expenses.
In this section, we describe our abnormal accrual estimation process, our abnormal return measures, various implementation and research design choices, and the sample selection process.
Note that other theories such as accrual reliability make no such predictions.
These accrual policies and rules enhancements are estimated to reduce the time required to configure accruals policies and rules by 80%.