Accruals Accounting

Accruals based accounts provide a more accurate picture of a company's activities than cash based accounts as they incorporate expected future income and expenses. They recognise revenues and expenses when they are accrued, that is to say earned or incurred, irrespective of whether money has been received or paid out. Cash based accounts only record transactions when money is paid or received. A company's balance sheet put together on an accruals basis shows estimates of liabilities and assets and payments that have been incurred or acquired but have not yet paid or realised. They can include accounts payable, accounts receivable and upcoming tax liabilities and interest payments.

See also: Profit Margin, Operating Margin, Profit and Loss Account, Statement of Cash Flow,