Accrual Accounting

Also called Cash Accounting

Recording revenue and expenses when they are earned or incurred, not when cash changes hands. Cash accounting, the simpler alternative, records them only when money moves.

Why it matters

Accrual accounting gives a truer picture of performance, matching revenue to the costs that produced it, which is why investors expect it. But it can hide cash-timing problems, so founders track both the accruals and the cash.

For example

Under accrual accounting, a company that signs a 12 lakh annual deal records 1 lakh of revenue each month as it delivers, not the full amount when the cash lands.

Go deeper

Cash Basis vs. Accrual Basis Accounting Explained: Which Is Right for Your Business? YouTube · article A short, visual walkthrough of the one idea behind the whole puzzle: accrual accounting records revenue when you earn it, not when the money lands, so your profit figure and your bank balance are measuring two different things. Seeing the timing laid out on screen makes it click faster than reading a definition. Treat it as the concept primer before you sit down with your own numbers. Watch on YouTube youtube.com →

Related terms

Also in Starting Up

See how founders actually handle this on Money, pricing and metrics, part of the Starting Up hub.

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