Recording income when earned and expenses when incurred — regardless of when cash moves.
Accrual accounting records income when it's earned and expenses when they're incurred, regardless of when money actually changes hands. Invoice a client in March, get paid in May — on accrual books, that's March revenue.
The point is accuracy: accrual matches revenues with the costs that produced them, so each month's profit reflects that month's actual business performance. The price is complexity — you need receivables, payables, and adjusting entries. Most larger businesses are required to use accrual; many small businesses keep accrual books but file taxes on cash basis. Knowing which basis a report is on is a fundamental bookkeeping habit.
A landscaper finishes a $2,000 job on June 28 and is paid July 10. Accrual books show $2,000 of June revenue (when earned). Cash-basis books show it in July (when collected). Same money, different month — and different-looking financial statements.
Cash-Basis Accounting · Accrued Expenses · Unearned Revenue — or browse the full plain-English glossary.
Reading a definition is the easy part — the Daily Challenge (ten questions a day, free, no signup) is how terms like this become reflexes. Going for certification? Start with the free ProAdvisor readiness check.