What Is Accrual Accounting?

Accrual accounting records revenues and expenses when they are earned or incurred, rather than when cash is actually received or paid. This method creates a more accurate picture of a company's financial position at any given time.

Under accrual accounting, a sale is recorded immediately when a customer is invoiced, even if they haven't paid yet. Similarly, expenses are recorded when they are incurred, not when the bill is settled. This approach is required under major accounting standards — GAAP (Generally Accepted Accounting Principles) in the US and IFRS (International Financial Reporting Standards) internationally — for companies preparing formal financial statements, and it provides a clearer link between revenue and the costs that generated it.

Accrual accounting differs from cash accounting, which only records transactions when money moves. While cash accounting is simpler, accrual accounting better reflects the true financial health of the business because it matches expenses to the revenue they produce.

Example

Imagine you run a consulting firm and complete a €5,000 project in January. Under accrual accounting, you record the €5,000 as revenue in January, even if the client doesn't pay until March. You also record project costs (freelancer fees, software subscriptions) when incurred, not when paid.

Finmap Integration

Finmap's cash-flow forecasting tools show you the real cash-timing side of your business — when money actually moves in and out — alongside the revenue and expenses your books record on an accrual basis. This makes it easier to plan around both what you've earned on paper and when the cash will actually land in your account.