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Finance Glossary

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Over 700 finance terms, Shmooped to perfection.

Accrual Accounting

Definition:

Accrual accounting refers to the practice of tallying up revenues and costs when a transaction occurs rather than when cash changes hands.

Example

Let's say you pay for a new tattoo with a credit card. If Tattoo Joe uses the accrual method of accounting, he adds the money he charged you to his accounts before your Tylenol even wears off—even if MasterCard takes months to pay up.

The opposite of accrual accounting is cash accounting, where money is only counted when it changes hands. That means Tattoo Joe would only add the price of your tattoo to his coffers after MasterCard had actually transferred the money to his account.