A method of accounting whereby an entity recognizes its income and expenses on the general ledger on an accrual basis- that is, at the time these items become owed (for income, owed by others to the entity; and for expenses, owed by the entity to others), rather than at the time they are actually received or paid. According to accrual basis accounting, expenses are matched with revenue, irrespective of the time cash flows move in either direction.

This method of accounting allow entities to match expenses and revenue more precisely. It is also a better way (than cash basis accounting) to account for profits, and to keep track of all accounts, like assets and liabilities, and inflows and outflows of cash.