Accrual Accounting

Accrual accounting is the accounting method that records revenues when earned and expenses when incurred, regardless of when cash actually changes hands — as opposed to cash-basis accounting, which recognizes transactions only upon receipt or disbursement of funds. Under GAAP and IFRS, accrual accounting is mandatory for public companies and generally required for any business with average annual gross receipts exceeding $29 million (the IRS Section 448 threshold, adjusted annually for inflation). The accrual method provides a more accurate picture of a company's financial position by matching revenues to the periods in which they were generated and expenses to the periods in which they contributed to revenue. Key accrual entries include accounts receivable (revenue recognized before cash receipt), accounts payable (expenses recognized before payment), prepaid expenses, deferred revenue, and accrued liabilities such as wages payable and interest payable. Month-end accrual processes typically require 3–7 days for mid-market companies, with blind accruals (estimates for invoices not yet received) representing one of the most error-prone areas — organizations without automation commonly see accrual variances of 5–15% that distort financial reporting and complicate audit preparation. Quadient AP's real-time liability tracking eliminates much of this guesswork by providing visibility into invoices received but not yet approved, enabling CFOs to close the books with accrual accuracy within 1–2% of actual. For early-stage businesses using doola's bookkeeping services, transitioning from cash to accrual accounting at the right growth stage ensures audit readiness and investor-grade financial statements.