--- title: "Accrual accounting: Definition and Sources | Tax Glossary" description: "Accrual accounting records income when it is earned and expenses when they are incurred, no matter when cash changes hands." url: https://wallacecpa.multisites.ai/glossary/accrual-accounting publisher: Wallace CPA phone: +1-877-682-1171 quote: https://wallacecpa.multisites.ai/contact --- Bookkeeping and payroll # Accrual accounting Accrual accounting records income when it is earned and expenses when they are incurred, no matter when cash changes hands. Accrual accounting follows the event, not the cash. The IRS explains that under the accrual method you generally report income in the year you earn it, whether or not you have been paid. You deduct expenses in the year you incur them, even if you pay later. This differs from the cash method, which records income and expenses when money moves. Accrual books give a truer picture of profit, so lenders often prefer them. Many small businesses can use either method, and some must use accrual. The choice shapes your [profit and loss statement](https://wallacecpa.multisites.ai/glossary/profit-and-loss-statement) and your [bookkeeping](https://wallacecpa.multisites.ai/glossary/bookkeeping). The [small business accounting page](https://wallacecpa.multisites.ai/services/small-business-accounting) covers method choices. [Wallace CPA can helpSmall business accounting](https://wallacecpa.multisites.ai/services/small-business-accounting) ## Related terms - [Bookkeeping](https://wallacecpa.multisites.ai/glossary/bookkeeping) - [Profit and loss statement](https://wallacecpa.multisites.ai/glossary/profit-and-loss-statement) - [Balance sheet](https://wallacecpa.multisites.ai/glossary/balance-sheet) ## Sources 1. [IRS: Publication 538, Accounting periods and methods](https://www.irs.gov/publications/p538) ## Talk to Wallace CPA Call the Southlake office and say what you need: a return, an IRS letter, your books or a new business. Have the notice or last year's return nearby if you have one. [Call (877) 682-1171](tel:+1-877-682-1171)[Send a message](https://wallacecpa.multisites.ai/contact) 180 State Street, Suite 225, Southlake, TX 76092