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accrual

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accrual

Standard accounting practice where an expense occurring during the accounting period is entered into the accounts regardless of whether there is supporting evidence, such as a bill or invoice. An example would be when electricity charges have been incurred but no bill has yet been received. In such a case, the expense credit would be entered into the accruals account, and the corresponding debit would be entered into the electricity expenses account.



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One startup decision that seems to cause entrepreneurs unnecessary consternation is selecting the right accounting method -- cash basis or accrual basis The primary purpose of the accounting method you choose is to calculate your business''s taxable income for federal (and state) income tax purposes One startup decision that seems to cause entrepreneurs unnecessary consternation is selecting the right accounting method -- cash basis or accrual basis.
In 1984, the IRS announced that it would not request tax accrual workpapers from taxpayers during an examination except in unusual circumstances (referred to as the "policy of restraint") (Announcement 84-46).
Revenue on the accrual basis is recognized when earned, while under the cash basis it is recognized when collected.
 
 
 
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