Accrual Accounting

Recording revenue and expenses when earned or incurred, not when cash moves.

Accrual accounting recognizes revenue when earned and expenses when incurred, regardless of when cash changes hands. It gives a more accurate picture of performance than cash accounting and is required under GAAP for most companies, though it can obscure cash timing.

Under accrual accounting, the sale was booked when the goods shipped, not when the cash arrived.