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GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Accrual Method


Synonyms:accumulation, book keeping method
Filed Under: financial-banking, investments, taxation
Tags: banking, investment, taxes
 

Definition of accrual method

accrual method
1. In business accounting, the accrual method refers to reporting income in the year it was earned along with any expenses incurred, rather than reporting the income and expenses when payment is received or made. For example, if you renovated a basement and billed the customer in December 2004, the amount you charged is reported in 2004 as income even if the customer did not pay until the following year. Also, if you own a business that keeps an inventory, you are also required to use this method of business accounting.

Related Terms and Acronyms:

  • accounting method   The method used by a business or individual to keep records. Most individuals and small businesses use the cash method, although businesses that maintain inventory are required to use the accrual method. See also "Accrual Method" or "Cash Method."
  • cash method   The form of accounting in which you report income in the actual year you receive it and deduct expenses in the year you pay. Most individuals use this method. Under this system, if you built a deck and billed the client in December 1999 but didn't receive the cheque until January 2000, it would be counted as 2000 income, not 1999.

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