Accounting technology / Glossary / Accrual accounting

What is accrual accounting?

Definition

Accrual accounting records revenue when it is earned and costs when they are incurred, regardless of when cash moves. Accounting software automates the entries that make it work: accruals, prepayments, deferred revenue and depreciation. Any ledger used by a company beyond the smallest businesses runs on the accrual basis.

Also calledaccrual basis accountingaccruals accounting

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Opposite basis: Cash accounting
Hardest area: Revenue recognition
Category: Bookkeeping

Accrual accounting in practice

The manual burden of accrual accounting is the month-end adjustments. Prepayments must be released over the months they cover, deferred revenue recognised as it is earned, accrued costs estimated and reversed. Ledgers such as QuickBooks and Xero handle the basics; revenue recognition for subscription businesses needs either an ERP module or a specialist tool, and the AI-native systems automate the schedules from contracts and invoices. Accrual, the company, is unrelated: it is an AI tax preparation vendor for firms.

Common questions

What is the difference between cash and accrual accounting?+

Cash accounting records money when it is received or paid. Accrual accounting records income when earned and expenses when incurred, giving a truer picture of a period's performance. Most tax authorities allow cash accounting only for very small businesses.

Can QuickBooks and Xero do accrual accounting?+

Yes, both default to accrual and can report on a cash basis. What they lack is automated revenue recognition for complex contracts, which is where Tabs, RightRev and the ERPs come in.

Is Accrual an accounting software company?+

Accrual is an AI tax preparation company for accounting firms, profiled on Accountio. The name is a play on the accounting term.