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Related to Accounting Method: accrual basis
Any system of accounting that uses a unique way for recognizing revenue and earnings. An accounting method reports revenue and earnings differently from other methods in order to assure that every company pays the appropriate amount in taxes. Two major accounting methods are accrual accounting and cash accounting. Accrual accounting recognizes revenue and matches it with the expenses that generated that revenue. Cash accounting, on the other hand, recognizes revenue and expenses in the order in which they are received or created. Regulations require different companies to use different accounting methods; for example, companies with inventories are required to use the accrual method.
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The method under which income and expenses are determined for tax purposes. Major accounting methods are the cash method and the accrual method.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary