An accrual is a record of revenue earned or expenses incurred before cash is actually received or paid. Under accrual accounting, transactions are recorded when they happen economically — not when the money moves.
If your company delivers a project in March but doesn’t get paid until May, accrual accounting records the revenue in March. If you receive an electricity bill in December but pay it in January, the expense is recorded in December.
You’ll hear this when…
Accrual accounting is the standard for any company above a certain size. Public companies are required to use it. If you hear someone mention “accrual basis” versus “cash basis,” they’re comparing two accounting methods: accrual (record when earned/incurred) versus cash (record when money moves). Most financial statements you’ll encounter use accrual accounting.
The term also appears as a noun — “we need to book an accrual for that” means someone needs to record an expense or revenue entry before the cash transaction happens.
Why it matters
Accrual accounting gives a more accurate picture of a company’s financial health than cash accounting because it matches revenue with the expenses incurred to earn it. Without accruals, a company could look profitable in one month and broke in the next, purely based on payment timing.
For a walkthrough of how accruals and other terms show up in practice, see the jargon you’ll actually hear in your first finance job.
Source: International Financial Reporting Standards (IFRS), IAS 1 — Presentation of Financial Statements