Podcasts are a convenient way for savers to boost their personal finance knowledge.
Accrual accounting is a business term you should know. Bankrate explains.
What is accrual accounting?
Accrual accounting is a real-time accounting method that works on the basis that a company is likely to receive money for a product or service at some point. The company records the sale at the point of the transaction, even if the transaction was made using a credit card or deferred payment method.
With accrual accounting, transactions are recorded as they are agreed to instead of when they are completed. That way the company can record revenue or expenses even before the accounting period is over.
A business must use the accrual method of accounting if it has sales in excess of $5 million per year or gross receipts over $1 million per year.
This is in contrast with cash accounting, which only records a transaction at the point the company receives payment. Accrual accounting helps a business better plan its growth strategy, while cash accounting indicates current cash flow. Accrual accounting is considered a truer way of accounting because there is no delay between the income or expense and the exchange of cash.
Need cash on hand? You might look into a personal loan, and Bankrate can help you find the best rate.
Accrual accounting example
Kara’s business used the equivalent of $1,142 in electricity for the month of August. Her electric company sends her the bill, which, under the accrual accounting system, Kara records in the books as a transaction taking place in August. Although she doesn’t actually pay the bill until September, the transaction is recorded as an expense for the month of August.
More From Bankrate
5 min read May 24, 2022
These 10 money-themed books can help you improve your finances.4 min read May 13, 2022
There are many ways scammers can steal identities and use them for gain, usually of a financial nature.4 min read May 06, 2022
A significant portion of Americans experience financial worries.5 min read May 02, 2022
Identity theft is a term that covers a variety of crimes in which someone steals another person’s personal information.5 min read Apr 29, 2022
Look for a plan with a reputable provider that offers services that make you feel confident.5 min read Apr 29, 2022
If you discover the breach early and act without delay, you could minimize the damage.4 min read Apr 29, 2022
Here’s a breakdown of where identity theft occurs most often, according to FTC data.5 min read Apr 29, 2022
Stay alert and don’t think identity theft can’t happen to you.5 min read Apr 29, 2022