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Accrual accounting is a method of accounting where revenue and expenses are recorded when they are earned or incurred, rather than when cash is actually received or paid. This approach gives a more accurate picture of a company’s financial health by recognizing economic events regardless of cash flow timing. Accrual accounting is the standard method used by most companies, as it provides a more comprehensive view of financial performance, allowing businesses to match revenues with the expenses incurred to generate them.
If a company delivers a product in December but doesn’t receive payment until January, it would record the revenue in December under accrual accounting.
• Records revenue and expenses when they are earned or incurred, not when cash changes hands.
• Provides a more accurate view of financial performance.
• Required by most businesses for financial reporting.
It provides a clearer and more accurate picture of a company’s financial position by matching revenues with related expenses.
Accrual accounting records transactions when they occur, while cash accounting records them only when cash is received or paid.
Most businesses, especially larger companies, use accrual accounting as it provides a more detailed view of financial performance.
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