Accrual Method of

Income and Expenses

Arkanghel G. Alcover
 What Is Accrual Accounting?

• Accrual accounting is a financial accounting method that allows a

company to record revenue before receiving payment for goods or
services sold and record expenses as they are incurred.
• The method follows the matching principle, which says that revenues and
expenses should be recognized in the same period.
 How Accrual Accounting Works

• The general concept of accrual accounting is that accounting journal

entries are made when a good or service is provided rather than when
payment is made or received. Entries are also made for debts and
payments due.
• This method allows the current and future cash inflows or outflows to be
combined to give a more accurate picture of a company's current and
long-term finances.
What are the methods of accruing for income?

• There are two primary methods of accounting— cash method and

accrual method. The alternative bookkeeping method is a modified
accrual method, which is a combination of the two primary methods. Cash
method—income is recorded when it is received, and expenses are
recorded when they are paid.
 Cash Method
• Cash basis accounting is an accounting method that recognizes income
and expenses only when cash is exchanged. This method is simpler than
the accrual basis accounting method, which records income and expenses
when they are earned or incurred, regardless of when money is actually
exchanged.
• Accrual accounting involves tracking income and expenses as they are
incurred (when an invoice is sent or a bill received) instead of when
money actually changes hands.
 What is accrual income and expense?
• Accruals are revenues earned or expenses incurred that impact a
company's net income on the income statement, although cash related
to the transaction has not yet changed hands. Accruals also affect the
balance sheet, as they involve non-cash assets and liabilities.
 Example
• A simple example of accrual accounting for revenue is when a company
makes a sale to a customer on trade credit, meaning the buyer pays the
seller within a set period of time after the transaction.
 What are 2 examples of an accrued expense
account?
Salaries, rent, and interest are common accrued expenses that companies
owe. Accounts payable, on the other hand, are owed to creditors, including
suppliers for goods and services purchased on credit. Occurrence: Accrued
expenses tend to be regular occurrences, such as rent and interest payments
on loans.
 What is accrual accounting formula?
Accrual Accounting Equations. 

Debits = Credits, Assets = Liabilities + Equities.

 How do you explain accrued expenses?
Accrued expenses are those incurred for which there is no invoice or
other documentation. They are classified as current liabilities, meaning
they have to be paid within a current 12-month period and appear on a
company's balance sheet.