Definition:
In the accrual basis accounting system:
- Income is recorded when it is earned even if monies have not yet been received; and
- Expenses are recorded when they occur - not necessarily when they are actually paid.
Total revenues and expenses are shown in financial statements whether or not cash was received or paid out in a particular accounting period.
Cash basis accounting works on a strictly cash-in, cash-out basis; transactions are only recorded when money actually changes hands.
Also Known As: Accrual Accounting, Modified Accrual Basis Accounting
