An accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash is actually received or paid. This principle ensures financial statements reflect economic activity in the period it occurs, providing a more accurate picture of a company's financial performance.
From Old French 'accroistre' meaning 'to increase' or 'grow,' ultimately from Latin 'accrescere' (ad- + crescere, to grow). The accounting sense developed in the 19th century as businesses became more complex and needed to match revenues with related expenses in the same period.
Accrual accounting is like keeping score in a basketball game by when points are earned, not when the scoreboard operator finally updates the display! It captures the economic reality of business activity, which is why a company can be 'profitable' on paper while being cash-poor in reality.
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