FinTech Glossary

Overview

Accrual accounting is a method where income and expenses are recorded when they are earned or incurred, not when cash is received or paid. It reflects the true financial position of a business by matching revenue with related costs.

Business Context

Accrual accounting is the preferred method for growing businesses, companies governed by the Companies Act, Ind AS filers, and organisations with credit cycles.

It provides more accurate financial reporting, improves forecasting, and offers better clarity for audits, compliance, and investor reporting.

How it Works

1. Revenue recognition: Recorded when a company delivers goods or services, even if payment is pending.
2. Expense recognition: Recorded when costs occur, such as vendor invoices, utilities, or salaries, regardless of payment timing.
3. Adjustments: Includes accruals, pre-payments, depreciation, and amortization to present accurate period-end results.

This ensures financial statements reflect economic reality rather than cash movement alone.