Bookkeeping

Accrual basis accounting

Recording income and expenses in the period they belong to, regardless of when the cash moves. The standard method for companies across the EU.

What Accrual basis accounting means

Accrual accounting recognises revenue when it is earned and expenses when they are incurred, so an invoice issued in December counts in that year even if the customer pays in January. Receivables, payables, prepayments and provisions capture the timing differences between the economic event and the cash flow. The result is a profit figure that reflects the activity of the period.

The EU Accounting Directive requires companies with limited liability to prepare annual accounts on the accrual basis, and national tax law usually follows the accounting result with adjustments. Sole traders may still be allowed a cash basis. Accrual bookkeeping demands more discipline: unpaid invoices must be tracked, year-end cut-off checked and depreciation and accruals booked. Kontevia records the document date and the payment date separately so both views are available.

Related terms

Cash basis accountingRecording income when money is received and expenses when they are paid. Simple, allowed for small businesses in many EU countries.Chart of accountsThe structured list of ledger accounts a business posts to. Some countries prescribe a national chart, others leave it to the company.Annual accounts (financial statements)The yearly balance sheet, profit and loss account and notes that companies must prepare, approve and file with a public register.DepreciationSpreading the cost of a long-lived asset over the years it is used, instead of deducting it all at once in the year of purchase.

This entry is general information, not tax advice. Rules change; check the current position with your adviser or the tax authority of your country.

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