What is Accrual Accounting?
The accounting method that records economic activity when it happens - regardless of when cash changes hands.
Accrual Accounting: definition
Under accrual accounting, a sale you invoice in March is March revenue even if the customer pays in May, and a bill for March services is a March expense even if you pay it in April. This "matching principle" - pairing revenue with the costs that produced it - is what makes accrual statements a truer picture of performance than cash-basis books. It is required under US GAAP and IFRS, and it is what investors, lenders, and auditors expect to see.
- Revenue is booked when earned (goods delivered or service performed), creating accounts receivable if unpaid
- Expenses are booked when incurred, creating accounts payable or accrued liabilities if unpaid
- Deferrals and accruals adjust each period so income lands in the right month
- Contrast with cash-basis accounting, which records only when money actually moves
How Fintra handles it
Fintra runs on an accrual general ledger by default. When you invoice a customer or approve a bill, the AI drafts the journal entry - debit AR / credit revenue, or debit expense / credit AP - so accruals happen as a byproduct of normal workflow, not a month-end scramble. Deferred revenue and prepaid expense schedules amortize automatically, and the close process reconciles the resulting balances.
- AI-drafted journal entries post on an accrual basis as invoices and bills are created
- Recurring accruals and deferrals amortize on a schedule instead of manual reversing entries
- A named human approves any entry that changes the books - AI proposes, a person confirms
Worked example
Frequently asked questions
Is accrual accounting required?
US GAAP and IFRS both require accrual accounting for audited financials, and the IRS requires it for most businesses above roughly $30M in average gross receipts or that carry inventory. Smaller businesses may use cash basis for taxes, but investors and lenders almost always want accrual statements. Fintra keeps an accrual ledger so you are ready for either.
What is the difference between accrual and cash accounting?
Cash accounting records revenue and expenses only when money moves; accrual records them when the economic activity happens. Accrual gives a more accurate picture of profitability period to period because it matches revenue with the costs that generated it, at the cost of tracking receivables, payables, and deferrals.
Do accruals reverse?
Many do. An accrued expense booked at month-end (before the bill arrives) is typically reversed the following month when the actual invoice posts, so the cost is not double-counted. Fintra automates these reversing entries so the reversal happens on schedule rather than being forgotten.
Does Fintra support cash-basis reporting too?
Yes. Fintra keeps the books on accrual for accuracy and audit-readiness but can present cash-basis views for tax planning and owner reporting, since it holds both the invoice/bill dates and the actual payment dates on the same records.
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