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Accrual Accounting

Accrual accounting is an accounting strategy that records payments and expenses when they are earned and incurred. This is different from cash accounting where revenue is recognized when it is actually deposited or transferred. 

For example, if a contract states that a vendor will be paid for delivering a product on a particular date, that revenue is “earned” and recorded when the terms are fulfilled. However, it may take up to 90 days for the payment to be deposited in the vendor’s account depending on the contract. This delay is known as days sales outstanding (DSO), and minimizing this metric is a key indicator of a business’s overall financial health.

Related terms

ASC 606
Accounting Standards Codification (ASC) 606 is a standard framework for revenue recognition developed by the Financial Accounting Standards Board (FASB) for companies operating within the United States.
Account Reconciliation
Account reconciliation is the process of comparing two sets of records to ensure their accuracy and consistency.
Accounts Payable
Accounts payable (AP) refers to the amount of money that a business owes to its suppliers or creditors for goods or services purchased on credit.
Accounts Payable Automation
Accounts payable automation (AP Automation) refers to the use of technology and software solutions to streamline and optimize the accounts payable process within an organization.
Accounts Receivable Aging
Accounts receivable aging is a reporting process that categorizes unpaid invoices and credit memos according to how long they remain outstanding. They are typically sorted into 30-day ranges (0-30 days, 31-60 days, 61-90 days), and this report is how companies calculate their days sales outstanding (DSO) average. 
Accounts Receivable Turnover
The accounts receivable turnover ratio (or debtor turnover ratio) allows businesses to evaluate their debt collection efficiency.