What is Accrual Accounting?

An accounting method that records revenue when earned and expenses when incurred, not when cash moves.

For example, a consulting firm completes a $10,000 project in December but doesn't receive payment until January. Under accrual accounting, the $10,000 is recorded as revenue in December when the work was done, not in January when the cash arrives.

Why it matters: It provides a more accurate picture of a company's true financial health and long-term profitability than cash accounting.