Mergers & Acquisitions

Resources: Glossary

Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.

Accrual Method of Accounting/Accrual Basis

Definition

One of the two primary accounting methods, recognizes income and expenses based on when they are “accrued” or when they actually occur.

Example

If a job was awarded today but the invoice was not paid for 30 days, under the accrual-based accounting system, a portion of the revenue from that job would be recognized now; however, with cash-based accounting, revenue would not be recognized until payment for the job was actually received.

See Also

Accounting method, cash basis.

Tips

The accounting method used (cash or accrual) can dramatically affect the stated earnings of a company and, therefore, its valuation. Cash-basis accounting recognizes income and expenses based on when the cash is received or paid, while accrual accounting recognizes income and expenses based on when they are “accrued,” or when they actually occur.