2 min read
Definition
The accruals basis (or accrual accounting) recognises revenue when it's earned and costs when they're incurred, regardless of when the money is received or paid. It's required for limited-company statutory accounts.
In plain terms
It matches income to the period that produced it, even if the cash arrives later. That's why profit on paper can differ sharply from the money in the bank.
Why it matters for your company
Understanding accruals is why a profitable company can still be short of cash — and why you manage both. See profit vs cash flow.
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