accrual accounting


accrual accounting
A system of accounting in which revenue is recognized when it is earned and expenses are recognized as they are incurred. The accruals concept is a basic accounting concept used in the preparation of the profit and loss account and balance sheet of a business. Accrual accounting differs from cash-flow accounting, which recognizes transactions when cash has been received or paid. In preparing financial statements for an accounting period using accrual accounting, there will inevitably be some estimation and uncertainty in respect of transactions. The reader of the financial statements therefore cannot have the same high level of confidence in these statements as in those using cash-flow accounting.

Accounting dictionary. 2014.

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