Accrual Accounting
An accounting method that records revenue and expenses when earned or incurred, not when cash is exchanged.
Definition
Accrual accounting records financial transactions when the economic event occurs, regardless of when cash changes hands. In AP, this means recording an expense when goods or services are received, even if the invoice has not arrived. This provides a more accurate picture of financial obligations than cash-basis accounting.
Why It Matters
Accrual accounting is required by GAAP and provides more accurate financial statements. AP teams must book accruals for received-but-not-invoiced items to avoid understating liabilities.
Examples
AP accrual
Materials received on December 28 but invoice not received until January 5. An accrual is booked in December to properly match the expense.
Service accrual
Legal services performed in Q4 but invoiced in Q1 of next year. An estimate is accrued in Q4 for accurate quarterly reporting.
How Nexus AP Helps
Nexus AP identifies received-not-invoiced items and helps estimate accruals at month-end for accurate financial reporting.
Start Free TrialFrequently Asked Questions
Why is accrual accounting required?
GAAP requires accrual accounting because it matches expenses to the period they were incurred, providing a more accurate financial picture than cash-basis accounting.
What is a GRIR (goods received, invoice received) reconciliation?
It reconciles goods received against invoices received to identify items that need accruals (received but not invoiced) or reversals (invoiced but not received).
Category
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