Accrual Method
The Accrual Method is an accounting approach that recognizes revenue and expenses when they are incurred, regardless of when cash is actually received or paid. This method aligns with the principle of matching revenues earned with the expenses incurred to generate those revenues, providing a more accurate picture of a company’s financial performance during a specific period.
For example, if a company provides services in December but doesn’t receive payment until January, under the Accrual Method, the revenue would be recorded in December, the month in which the service was performed. Similarly, if the company incurred expenses in December but pays for them in January, those expenses would also be recorded in December. This method is commonly used by larger businesses and is required by Generally Accepted Accounting Principles (GAAP) for public companies.
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