accrual method

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 method

An accounting method in which income is counted when it is earned (whether you receive the money at that time or not) and expenses are counted when incurred (whether you pay the bill at that time or not). It is the opposite of the cash method, in which income is counted when money is received and expenses are counted when the bills are paid.Most businesses use the accrual method because it allows income,and the expenses associated with generating that income, to be accounted for in the same period. (Many small businesses use the cash method because it's easier.)

References in periodicals archive ?
With the accrual method, because the billing charges are submitted in January when the services were provided (minus the insurance contractual adjustments), the $50,000 revenue is immediately counted and recognized, even though the practice only received $10,000 cash for those billings during January.
Deferring income can be more challenging if your company uses the accrual method of accounting, but, in certain circumstances, you may be able to defer income, even where you have been paid in advance.
Most construction businesses use the accrual method for theirgeneralmethod of accounting.
When they are not required to use the accrual method, taxpayers should consider the benefits provided under the cash method.
Hence the concern of the 46 senators, who referred to the draft's proposal to require all businesses that exceed $10 million in annual gross receipts to use the accrual method of accounting.
Part of his plan includes a proposal that would considerably impact CPA firms and other businesses that use the cash method of accounting by requiring that they use the accrual method for tax purposes.
Return of Partnership Income, did not indicate whether it was using the cash method or the accrual method to determine income, but it did indicate on its partnership returns for years 2004 through 2006 that the accrual method was used.
An introduction to federal income taxation is followed by 30 chapters covering gross income concepts and limitations, sale of a principal residence, life insurance and annuities, compensation for personal injury and sickness, business expenses, and so on, ending with accrual method accounting, annual accounting, and capital gains and losses.
Contractors who can't use the cash method should use the accrual method for overall expenses and short-term contracts.
To review, two primary accounting methods exist--cash method and accrual method.
The accrual method does a better job realistically matching income and expenses, but is more complicated.