1

accrual

play
noun ac·cru·al \ə-ˈkrü-əl\
Updated on: 26 Jul 2017

Definition of accrual

  1. 1 :  the action or process of accruing something money gained by the accrual of interest

  2. 2 :  something that accrues or has accrued an employee's vacation accruals

Examples of accrual in a Sentence

  1. had an accrual of $100 through interest on my savings account last year

Recent Examples of accrual from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'accrual.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of accrual

accrue + 2-al


2

accrual

adjective ac·cru·al

Definition of accrual

  1. :  relating to or being a method of accounting that recognizes income when earned and expenses when incurred regardless of when cash is received or disbursed (see disburse 1a) — compare cash

Recent Examples of accrual from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'accrual.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of accrual

derivative of 1accrual


Financial Definition of ACCRUAL

accrual

What It Is

Accruals are records of revenue and expenses in the periods in which they are incurred. They are a key component of the accrual method of accounting.

How It Works

Company XYZ must insure one of its buildings. The insurance company bills Company XYZ $600 every six months (one bill in January, the next in July). If each bill is for six months' coverage, then under the accrual method, Company XYZ would not record a $600 expense in January and a $600 expense in July (doing so would mean Company XYZ was using the cash method); it would instead record a $100 expense each month for the whole year. That is, Company would match the expense to the periods in which it is incurred: $100 for January, $100 for February, $100 for March, and so on. As you can see, accruals recognize economic events in certain periods regardless of when actual cash transactions occur.

Accrual accounting is the opposite of cash accounting, which recognizes economic events only when cash is exchanged. The accrual method is more common than the cash method, and the IRS often requires companies to use accruals when they have more than a certain level of revenues or carry inventory.

Why It Matters

Although it is more complex, harder to implement and harder to maintain than the cash method of accounting, most analysts agree that accruals provide a more accurate picture of a company's performance. That's because in any given accounting period, revenues are associated with their corresponding expenses, which gives a truer picture of the real costs of producing the revenue in a given period.

Additionally, accruals allow companies to reflect the fact that sales may have been made and expenses incurred even if cash has not changed hands yet (as is often the case with sales made on credit and similar circumstances). This in turn produces financial statements that are comparable over time.

However, one of the big drawbacks of accruals is that they tend to obscure the nature of the company's actual cash position (e.g., a company may show millions in sales but only have $10 in its cash account because its customers haven't paid yet).


Law Dictionary

accrual

play
noun ac·cru·al \ə-ˈkrü-əl\

Legal Definition of accrual

  1. 1 :  the action or process of accruing claim must be brought within two years of the date of accrual

  2. 2a :  something that accrues; especially :  an amount of money that periodically accumulates for a specific purpose (as payment of taxes or interest) b :  something that has accrued during a specified period



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