Accrual Basis
Definition
Accrual basis accounting records revenue when it is earned and expenses when they are incurred — not when cash moves. This gives a more complete picture of a business's financial activity.
Example
A business completes $5,000 of work in March and invoices the customer. Under accrual basis, the $5,000 is March revenue even if the customer pays in April.
Why It Matters
Accrual basis is the standard method for most businesses. It shows profit and expenses in the period they actually belong to.