Accrual basis accounting
Accrual basis accounting records transactions when the underlying economic event occurs, not when cash moves. Revenue is recognised when a good is delivered or a service performed; an expense is recognised when a resource is consumed.
Also known asaccruals
See it move
A short timeline shows a project completed on 28 December: at that point €10,000 of revenue is recognised and a receivable is created, with no cash yet received. On 15 January the customer pays, the receivable is cleared, and no new revenue entry is made — the earnings event belongs to December, not January.
Check yourself
A consultancy completes a project on 28 December and invoices the client for €15,000. Payment arrives on 20 January of the following year. Under accrual-basis accounting, in which period should the €15,000 be recognised as revenue, and why?