Definitions for "Accrual basis of accounting"
is wherein revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that generally is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.
As opposed to “Cash method” or “Cash basis,” a method of accounting applied for tax purposes. The method of tax accounting used determines when a transaction has significance for tax purposes. Under the accrual method, a transaction is taxed when the taxpayer “accrues” an obligation to pay or a right to receive a payment is created. In the case of a service business, for example, income tax would be payable in the year during which services are rendered, as opposed to the year when payment is actually made (as would be the case under the cash method). The accrual method is used by most businesses. Smaller businesses use the cash method.
A basis of budgetary accounting in which revenue is recorded when earned and expenditures are recorded when obligated, regardless of when the cash is received or paid.