Definition of Actual in Accrual Accounting

Save

Accrual accounting is the preferred accounting method by the Financial Accounting Standards Board (FASB). Large businesses and public companies use accrual accounting because it records actual transactions.

Facts

  • In accrual accounting, financial transactions are recorded as they actually occur instead of waiting for cash to change hands before being recorded. Future cash inflows and outflows are recorded as receivables and payables, respectively.

Time Frame

  • Because accrual accounting records actual financial transactions, monthly, quarterly or annual accounting periods are used to record transactions. This creates financial reports that can be compared with previous periods to ensure profitable operations.

Benefits

  • Recording actual financial transactions also helps businesses at the end of their tax year. Deductions can be claimed as transactions occur, allowing companies to have more “actual” accounting deductions, even if cash has not changed hands.

Warnings

  • While the accrual method shows the actual income and expenses for a company, it does not accurately track the company’s cash position. The statement of cash flow is used to reconcile a company’s cash flow.

Expert Insight

  • Generally Accepted Accounting Principles (GAAP) is the leading authority for U.S. accounting guidelines. Any changes in the accrual accounting method will come from changes in GAAP standards.

References

  • Photo Credit Jupiterimages/Photos.com/Getty Images
Promoted By Zergnet

Comments

You May Also Like

  • Actuals Vs. Estimates

    Actual and estimate costs show the difference between prediction and the reality of the costs. Estimated costs are those used to plan...

  • What Is Accrual Accounting?

    Accrual accounting is a type of accounting in which all transactions are recorded at the point when they occur. It is different...

  • How to Calculate Variance

    Variance is a measure of the amount of variability or scatter in our numerical data when compared to the mean, or average....

  • Checking Out Accounting Careers

    The accounting industry is very broad, and accountants can go into any industry, whether it's health care, technology or banking. Learn about...

  • How to Make a Budget

    Making a budget involves starting with this year's actuals and forecast to calculate an estimate for next year. Find ways to develop...

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!