A method of accounting that recognizes revenue when it is earned and realizable, regardless of when the cash is received, and recognizes expenses when the related revenue is recognized, rather than when the cash is paid.
For example, suppose that a company called ABC Inc. provides consulting services to a client in March, and the client agrees to pay for the services in April.
Under the accrual method of accounting, ABC Inc. would recognize the revenue from the consulting services in March, when the services were provided, even though the money has not yet been received.
The transaction would be recorded in the company's general ledger as a credit to the consulting services revenue account and a debit to the accounts receivable account.
Once April arrives and the client pays the invoice, the accounts receivable account would be reduced by the amount of the payment, and the cash account would be increased by the same amount.