Fundamental Glossary / Earnings & Accounting Concepts
Accrual Accounting
Recording revenue when it is earned and expenses when they are incurred, not when cash changes hands.
Formula
The basis required for company financial statements. It is why profit and operating cash flow differ.
What it means
Accrual accounting tries to match a period's effort with that period's result. Selling on credit, consuming inventory bought last month, and owing wages not yet paid are all accruals.
Without it, a company could look profitable or unprofitable purely by delaying a payment.
How to read it
Trust accruals when they reverse on schedule: last month's receivable becomes this month's cash. Distrust a growing accrual balance that never becomes cash.
What to watch
Accrual accounting is the standard, and it is also the room in which aggressive estimates live. The cash flow statement is the required companion.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.