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Accruals
Accruals refer to the accounting process of recording revenues and expenses when they are earned or incurred, rather than when the cash is received or paid. This allows businesses to have a more accurate picture of their financial performance.
For example, if a company completes a service for a customer in December, but doesn't receive payment until January, the revenue will be recorded as an accrual in December, even though the cash isn't received until January. Similarly, if a company incurs an expense for supplies in December, but doesn't pay for them until January, the expense will be recorded as an accrual in December. Accruals allow companies to better match their revenues and expenses in the same period, providing a more accurate view of their financial health.