Accrual Accounting Pittsburgh, PA

Accrual Accounting

Accrual accounting is based on activity agreed to even if no cash has been received or paid out. If a company sells on credit or uses credit itself, accrual accounting is necessary. In the U.S. the Securities and Exchange Commission requires publicly traded companies to use accrual accounting.

With accrual-based accounting, receivable and payables are recorded when a transaction occurs, even though no cash has changed hands. Cash-based accounting is more favorable to a company because it puts off recording revenue until the cash is received.

With accrual-based accounting a company’s statement can look great even if the money is not in the bank. Companies that use the accrual method may monitor cash flow on a regular basis to make sure they have enough cash to cover expenses.