What is accrual accounting in simple terms?

Accrual accounting records revenue when it's earned and expenses when they're incurred, regardless of when cash actually moves. A company that delivers a project in March but gets paid in April still books that revenue in March, because that's when the economic activity happened.

Accrued expenses vs. deferred revenue: what's the difference?

Accrued expenses are costs your business has incurred but not yet paid, making them liabilities on the balance sheet. Deferred revenue is cash you've already collected for work not yet delivered, which also sits as a liability until you've earned it by completing the service.

Should I use cash or accrual accounting for taxes if I'm under the IRS gross receipts threshold?

Falling below the $32 million average gross receipts threshold for 2026 means accrual accounting is not required under IRC Section 448(a) for most corporations and partnerships, so cash accounting remains a legal option. Even so, lenders, investors, and auditors typically expect GAAP-compliant accrual-basis financials regardless of what the tax code permits, so many businesses adopt accrual accounting before they're legally required to.

How does Double handle accrual accounting journal entries inside the close workflow?

Double's Accruals module manages prepaid expense amortization, fixed asset depreciation, deferred revenue, and loan amortization schedules directly inside the close, calculating recognition amounts and posting journal entries automatically with two-way sync to QuickBooks Online and Xero for accounting firms, and Sage Intacct and NetSuite for corporate finance teams. Every accrual action logs in the Activity Log, creating an audit trail for external auditors and internal compliance review.

What's the opposite of accrual accounting, and when does cash accounting actually make sense?

Cash accounting, the direct opposite of accrual accounting, records transactions only when money changes hands. It works well for a solo consultant or a small shop where sales and expenses clear the bank the same week, but once revenue grows, transactions multiply, or outside financing enters the picture, accrual accounting gives a more accurate picture of what a business actually earned and owes in a given period.

How do you pronounce 'accrual' in accrual accounting?

Accrual is pronounced uh-KROO-ul, with the stress on the second syllable. The common mispronunciation places the emphasis on the first syllable, as in 'ACK-rual,' but the correct form follows the pattern of other words derived from 'accrue.'

What is the difference between accrual accounting and cash accounting when a client pays late?

Under accrual accounting, revenue is recorded when the work is delivered, regardless of when payment arrives — so a December project counts as December revenue even if the client pays in February. Under cash accounting, that same project only appears in the month the payment clears, which can distort profitability by period and make seasonal patterns harder to read.

Are accrued expenses a liability or an asset on the balance sheet?

Accrued expenses are liabilities because they represent costs the business has incurred but not yet paid — money owed out. Prepaid expenses, by contrast, are assets because the business has paid in advance for a benefit it has not yet received.

What is the difference between accrual accounting and deferral accounting?

Accruals record revenue earned or expenses incurred before cash moves, while deferrals record cash received or paid before the related economic activity occurs. Deferred revenue is an example of a deferral: cash arrives upfront and sits as a liability until the service is delivered, at which point it converts to recognized revenue.

What is a journal entry for an accrued expense, and how does the double-entry work?

When a business incurs a cost it has not yet paid — say, $3,000 in wages earned by employees in March but paid in April — it debits the relevant expense account (Wages Expense) and credits Accrued Liabilities for $3,000 in March. When the cash goes out in April, it debits Accrued Liabilities and credits Cash, clearing the liability created by the original entry.

Why is the accrual basis of accounting generally preferred over the cash basis?

Accrual accounting matches revenue and expenses to the period they relate to, giving lenders, investors, and auditors a more accurate view of what a business earned and owed during a specific stretch of time. Cash accounting only reflects when money moved, which can make a profitable month look weak and a slow month look strong depending on payment timing alone.

Can I build accrual accounting entries without manually maintaining spreadsheet schedules?

Yes. Tools like Double's Accruals module manage prepaid expense amortization, fixed asset depreciation, deferred revenue, and loan amortization schedules as software objects inside the close workflow — calculating recognition amounts, preparing journal entries, and posting them automatically with two-way sync to your general ledger. Every action logs in an audit trail, replacing the manual schedule-and-reconcile cycle that spreadsheets require each period end.

What are some common accrual accounting expenses examples that appear at period end?

The most common accrued expenses at period end include wages earned but not yet paid, interest on outstanding loans, utilities consumed before the bill arrives, and unbilled vendor services. Each gets recorded as a debit to the relevant expense account and a credit to Accrued Liabilities, then reversed or settled when the cash payment clears.

How does accrued income differ from deferred revenue in accrual accounting?

Accrued income (also called accrued revenue) is money earned but not yet billed or collected — it sits as an asset because the business is owed that amount. Deferred revenue is cash already collected for work not yet completed — it sits as a liability because the business still owes the delivery. Both arise from timing gaps between economic activity and cash flow, but they land on opposite sides of the balance sheet.

When should a business switch from cash to accrual accounting?

Four situations typically drive the switch: crossing the IRS gross receipts threshold that makes accrual required under IRC Section 448(a), applying for a bank loan, bringing on outside investors, or starting to carry inventory. Even businesses that remain below the legal threshold often adopt accrual accounting earlier because lenders and investors expect GAAP-compliant statements regardless of what the tax code permits.

Accrual Accounting: How It Works & When to Use It

Say your team delivers a project in June but doesn't get paid until August. Under cash accounting, June looks slow and August looks great, even though the work happened in June. Accrual accounting records that revenue in June, where it belongs. It's a small shift in timing that makes a big difference in how you read your numbers.

TLDR:

Accrual accounting records revenue when earned and expenses when incurred, regardless of when cash moves.
Four accrual types span both sides of the balance sheet: accrued revenue and prepaid expenses are assets; accrued expenses and deferred revenue are liabilities.
Under IRC Section 448(a), the accrual method is required for most C corporations unless gross receipts average $32 million or less, per IRS guidance, over the prior three years.
Switching from cash to accrual makes sense when you apply for a loan, bring on investors, or start carrying inventory.
Double's Accruals module calculates recognition amounts, prepares journal entries, and posts them automatically inside the close workflow, with two-way sync to QuickBooks Online, Xero, Sage Intacct, and NetSuite.

What Is Accrual Accounting

Accrual accounting is a method of recording financial transactions when they happen economically, not when cash lands in or leaves a bank account. Revenue gets recorded when it's earned, and expenses get recorded when they're incurred, regardless of the timing of the actual payment. If a company delivers a service in June but doesn't get paid until August, accrual accounting books that revenue in June.

Pronunciation trips people up more than you'd expect. It's pronounced uh-KROO-ul, with the stress on the second syllable, not "ACK-rual" as some assume.

In simple terms, accrual accounting tries to match income and costs to the period they relate to. That match is the point: financial statements should reflect what a business earned and owed during a given stretch of time, beyond what moved through its checking account. This distinction becomes the foundation for nearly every other concept in accrual accounting, from journal entries to financial reporting accuracy.

The Core Principles Behind Accrual Accounting

The revenue recognition principle says revenue belongs in the period it's earned, not the period it's collected. A consulting firm that finishes a project in March but invoices in April still records that revenue in March.

The matching principle works the other side of the ledger. Expenses get recorded in the same period as the revenue they helped generate, regardless of when cash left the business. A sales commission paid in February for a deal closed in January gets matched back to January.

Together, these principles let a P&L tell an accurate story about a given month or quarter, reflecting work performed instead of the timing of bank transfers.

The Four Types of Accruals

Four categories cover almost everything you'll encounter under accrual accounting, and each one lands on a different side of the balance sheet.

Accrued revenue is money earned but not yet billed or collected, like a law firm's hours worked in December but invoiced in January. It sits on the balance sheet as an asset, usually under accrued receivables.
Accrued expenses are costs incurred but not yet paid, such as utilities used in one month and billed the next. These are liabilities, since the business owes that money out.
Deferred revenue is cash collected before the work is done, like an annual software subscription paid upfront. It is a liability until the service is delivered.
Prepaid expenses are cash paid before the benefit is received, such as six months of insurance paid at once. These are assets, recognized gradually as the coverage gets used.

Accrual Accounting Journal Entry Examples

Each accrual type turns into a journal entry recorded as a debit and credit pair. Four examples below show which accounts move and why.

Accrued revenue: A marketing agency finishes a project on March 28 but invoices the client April 5. In March, it debits Accrued Receivables and credits Revenue for $8,000.
Accrued expense: A company uses $2,400 of electricity in January but gets the bill in February. It debits Utilities Expense and credits Accrued Liabilities for $2,400.
Deferred revenue: A software company collects $12,000 upfront for a one year subscription. On collection it debits Cash and credits Deferred Revenue for $12,000. Each month it debits Deferred Revenue and credits Revenue for $1,000 as the service is delivered.
Prepaid expense: A firm pays $6,000 for six months of insurance, then debits Insurance Expense and credits Prepaid Expense for $1,000 monthly.

Scenario	Debit	Credit	Amount
Project completed, not yet invoiced	Accrued Receivables	Revenue	$8,000
Utilities used, bill not yet received	Utilities Expense	Accrued Liabilities	$2,400
Subscription paid upfront, recognized monthly	Deferred Revenue	Revenue	$1,000
Insurance paid upfront, expensed monthly	Insurance Expense	Prepaid Expense	$1,000

One side of each entry reflects the economic event. The other reflects the timing gap between that event and the cash movement.

Accrual Accounting vs. Cash Accounting

Cash accounting records a transaction the moment money changes hands. No matching, no timing adjustments, just what hit the bank account and when. That single difference explains why the same invoice can land in two different months depending on the method a business uses.

The table below shows how that single timing difference plays out across two months. Under accrual accounting, that $5,000 counts as December revenue. Under cash accounting, nothing gets recorded until the client pays, which might happen in January.

Method	When Revenue Is Recorded	December P&L Shows	January P&L Shows
Accrual accounting	When earned (invoice date)	$5,000 revenue	$0 for this job
Cash accounting	When collected (payment date)	$0 for this job	$5,000 revenue

Cash accounting still has real strengths. It is simple to maintain, gives an unfiltered view of cash on hand, and often lines up with how small businesses think about tax timing since income isn't taxed until received.

Benefits of Accrual Accounting

Investors, lenders, and auditors trust accrual accounting because it shows obligations and earnings that cash accounting hides until money physically moves. A lender wants to see what a business owes and is owed, going beyond what sat in the account that day.

That same visibility helps with decisions inside the business. Tracking accrued expenses catches spending trends before invoices land all at once, and matching revenue to the period earned shows which months or clients are actually profitable.

A clearer view of profitability by period, since revenue and its related costs land in the same month
Better forecasting, since trends in accrued revenue and expenses reveal what's coming before cash confirms it, forming a foundation for flux analysis
Stronger credibility with lenders and auditors who expect GAAP-consistent statements
Smoother audits, since the matching principle leaves a documented trail between activity and reporting

Challenges of Accrual Accounting

Accrual accounting demands more upkeep than cash accounting. Every prepaid expense, deferred revenue balance, and accrued liability needs a schedule, and that schedule needs review at period end. A business running accrual accounting without a bookkeeper or accountant on staff will likely need one, since adjusting entries don't post themselves.

The bigger risk is the gap between paper profit and actual cash. A business can show a strong month on its P&L while its bank account sits nearly empty, especially if large invoices remain unpaid. Without a cash flow statement running alongside the P&L, that gap can go unnoticed until a payroll run or vendor payment comes due.

Period-end close also gets heavier. Matching accrued accounts against actual bills and collections takes time, and a missed accrual or an entry booked to the wrong period can throw off an otherwise clean set of financials.

When Accrual Accounting Is Required

Two separate rules trigger accrual accounting: how you report to the outside world, and how you file taxes.

Under U.S. GAAP, accrual accounting is mandatory for any general-purpose financial statement. According to SEC Regulation S-X, public companies filing with the SEC must follow it, so cash-basis numbers rarely reach a 10-K or 10-Q.

Under IRC Section 448(a), C corporations, partnerships with a C corporation partner, and tax shelters generally must use an accrual method. One exception applies: according to IRS guidance, businesses averaging $32 million or less in annual gross receipts over the prior three years, the inflation-adjusted threshold the IRS set for 2026, can qualify as a small business taxpayer and stick with the cash method.

Falling under that threshold does not mean accrual accounting disappears as an option. Lenders reviewing a loan, investors reviewing a cap table, and auditors signing off on statements tend to expect GAAP-compliant, accrual-based numbers regardless of what the tax code allows. A business can be legally exempt from accrual accounting and still find every outside party asking for it anyway.

Should Your Business Use Cash or Accrual Accounting?

Cash accounting fits a very small business with simple operations: a solo consultant invoicing a handful of clients, or a shop where sales and expenses hit the bank the same week they happen. Once revenue grows, transactions multiply, or outside money enters the picture, accrual accounting becomes the more useful method.

A few triggers tend to force the switch:

Crossing the IRS gross receipts threshold, which moves accrual from optional to required for many corporations and partnerships with a C corporation partner
Applying for a bank loan, since lenders expect financials that show obligations and earnings, well beyond cash on hand
Bringing on investors, who want statements that reflect what the business earned in a period
Carrying inventory, which accrual accounting handles more accurately by matching the cost of goods sold to the revenue they generated

If any of these apply, accrual accounting is worth adopting even before it becomes mandatory.

How Double Handles Accruals Inside the Close Workflow

Managing accruals in a spreadsheet works until a formula breaks or a schedule goes untouched for a quarter, turning reconciliation into a hunt through source documents. Standalone accrual tools sit apart from the general ledger, forcing a manual match of the schedule against the books every close. Double's accruals module runs directly inside the close workflow.

Double's Accruals module handles prepaid expense amortization, fixed asset depreciation, deferred revenue, and loan amortization schedules directly inside the close workflow. Double calculates recognition amounts, prepares the journal entries, and posts them automatically. Two way sync runs across QuickBooks Online and Xero for accounting firms, and Sage Intacct and NetSuite for corporate finance teams.

Every accrual action logs in the Activity Log, creating an audit trail for external auditors and internal compliance review, part of a broader shift toward integrated close management.

On the Scale tier, AI Flux Analysis drafts variance explanations at the vendor and transaction level, so preparers review a draft instead of rebuilding the story each period.

For questions that go beyond a single period's variance, such as identifying which clients have recurring accrual patterns or querying a specific account balance on demand, Ask Double serves as a practice-wide AI assistant grounded in live ledger data. It answers cross-client questions, creates and assigns follow-up tasks directly from the conversation, and retrieves notes and activity logs across the book of business. Available on Core, Plus, and Scale plans, it turns the context already inside the close workflow into an interactive layer that eliminates the manual data work without removing the accountant's oversight and judgment.

Final Thoughts on Accrual Accounting

Accrual accounting builds a more accurate picture of your business, even when the cash in your bank account tells a different story. The tradeoff is more upkeep at period end, but that upkeep pays off the moment a lender or investor asks to see your books. Book a demo with Double to see how accrual entries and amortization schedules can post automatically as part of your close.

Accrual Accounting Explained With Examples (September 2026)