For Accrual Accounting we have terms and definitions in 2 topics. The topics are Economics and Finance.

Accrual Accounting (Economics)

A method of accounting often used in business, where expenses and revenues are entered when earned or billed, not when payment is received or disbursed.

Accrual Accounting (Finance)

Accountants’ record of revenues and expenses does not always match the actual cash inflows and outflows. Accountants follow a number of rules that govern when revenue or expenses hit an income statement. Here are a couple of the most significant examples:

Revenue Recognition - Suppose Ajax Corp. ships out a widget to a customer, along with a $100 invoice. At that moment Ajax’ accountant would recognize revenue of $100 (under most circumstances) – even though Ajax has not received the $100 in cash yet. Ajax records a receivable on its balance sheet for the $100. Ninety days later, when the check arrives, Ajax records an entry to remove the receivable and increase its cash balance. Note that this leads to a delay between the cash impact and the (accrual) accounting impact.

Inventory Accounting – Suppose Ajax spends the entire month of January making a widget at a direct cost of $50 (e.g. the apportioned salaries of the people working on it plus the cost of raw materials). The widget sits in the warehouse for three months and is finally sold for $70 on April 30.
What if Ajax used a cash accounting method, recognizing revenues and expenses when the cash actually moves? It would have a $50 loss in the first quarter and a $70 profit in the second quarter. Instead, accountants use principles that match the revenues with the expenses. The $50 of costs are capitalized – they increase the value of the inventory on Ajax’ balance sheet. So instead of attributing the $50 of costs to an expense on the income statement, the cost is temporarily capitalized to the balance sheet. Later, when the widget is sold, $70 of revenue and $50 expense are recognized ($20 profit) and the inventory disappears.

Depreciation – Suppose Ajax spends $1,000 on a new machine. The machine is expected to last for 10 years. The accountant does not show a gigantic $1,000 expense on the income statement this year. Instead, the $1,000 is capitalized – increasing the property, plant & equipment (PP&E) line item on the balance sheet. The expense is recognized over the period of time that the benefits of the machine are received. A depreciation expense of $100 per year for the next 10 years would be a very typical treatment. An annual $100 expense is recognized on the income statement. The cash picture is different. $1,000 is spent today and none for the next 10 years.

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