accrual basis

Thesaurus

Noun

accrual basis - a method of accounting in which each item is entered as it is earned or incurred regardless of when actual payments are received or madeaccounting system, method of accounting, accounting - a bookkeeper's chronological list of related debits and credits of a business; forms part of a ledger of accountscash basis - a method of accounting in which each item is entered as payments are received or made

Accrual Basis

Related to Accrual Basis: cash basis

Accrual Basis

A method of accounting that reflects expenses incurred and income earned for Income Tax purposes for any one year.

Taxpayers who use the accrual method must include in their taxable income any money that they have the right to receive as payment for services, once it has been earned. Any expenses that they may take as deductions when computing taxable income must be due at the time the deduction is taken. For example, suppose a surgeon performed a tonsillectomy in October 2003, and on December 31, 2003, he received a bill for carpeting installed in the waiting room of his office. He was paid the surgical fee on January 3, 2004, the same day he paid for the carpeting. The surgical fee will be included in his taxable income for 2003, the year in which he earned it, regardless of the fact that he was not paid until the following year.

His expenses for the carpeting can be deducted from his 2003 income because once he received the bill, he was bound to pay it. The fact that he did not pay for the carpeting until the following year does not prevent him from taking the deduction in 2003.

The accrual method of accounting differs from the cash basis method, which treats income as only that which is actually received, and expense as only that which is actually paid out. If the cash method were used in the above example, the payment of the surgical fee would be included as income for the 2004 tax year, the year in which it was received by the surgeon. The surgeon could deduct the cost of the carpeting only when he actually paid for it in 2004, although it had been installed in 2003.

Unearned income, such as interest or rent, is generally taxed in the year in which it is received, regardless of the accounting method that the taxpayer uses.

Accrual basis

In the context of accounting, practice in which expenses and income are accounted for as they are earned or incurred, whether or not they have been received or paid. Antithesis of cash basis accounting.

Accrual Accounting

A system of accounting that recognizes revenue and matches it with the expenses that generated that revenue. Unlike other systems of accounting, which recognize revenue and expenses in the order in which they are received, the accrual accounting convention ignores the function of time and only considers what expenses generate what revenues, even if payments have not actually been made. Companies with inventories are required to use the accrual method for tax purposes.

accrual basis

Accrual Basis

Accrual Basis

Accrual basis

Accrual basis

Accrual Accounting

accrual basis

Antonyms for accrual basis

noun a method of accounting in which each item is entered as it is earned or incurred regardless of when actual payments are received or made

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