Accrual Accounting
Definition
Accrual Accounting is a method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. Under accrual accounting, economic events are matched (revenues to expenses)regardless of when cash is exchanged (cash basis accounting). This is required under Generally Accepted Accounting Principles (GAAP) and the concept is termed the "matching principle".
International Financial Reporting Standards[1]
Under International Financial Reporting Standards, IAS 37 captures the accrual principle, which states:
- Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement. By contrast:
- (a) trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier; and
- (b) accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees (for example, amounts relating to accrued vacation pay). Although it is sometimes necessary to estimate the amount or timing of accruals, the uncertainty is generally much less than for provisions.
Accruals are often reported as part of trade and other payables, whereas provisions are reported separately.