Accrual Accounting
The convention of recording revenue when it is earned and expenses when they are incurred, regardless of when cash moves.
How it is identified
Test: the transaction is recognised in the period in which the economic event occurs, not the period in which cash is received or paid
Unit
qualitative
In depth
Accrual accounting exists because cash timing is arbitrary — a customer paying in April for goods delivered in March tells you nothing useful about which month the business earned its money. The cost is that recognition requires judgement, and judgement can be stretched: recognise revenue early, defer expenses, and reported profit rises with nothing else changing. The gap between accrual profit and operating cash flow, sometimes called the accrual ratio, is therefore a widely used early-warning measure. Accrual and cash accounting are not competing truths; the cash flow statement exists precisely to translate one into the other.
Worked example
Goods worth ₹50 crore are delivered in March with payment due in June. Accrual accounting books ₹50 crore of March revenue and a ₹50 crore receivable; the cash flow statement shows no cash and a ₹50 crore working capital outflow.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Accrual Accounting” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.