Q. What is accrual basis of accounting?

In the following illustration, notice that every business transaction affects two or more accounts in the ledger. As well note that the transaction date in both the general journal and the general ledger accounts is the same. In the ledger accounts and the date used is the date that the transaction was recorded in the general journal even if the entry isn't posted until several days later. Our illustration shows the journal entries posted to T-accounts. In fact firms post journal entries to ledger accounts.

Accountants utilize the accrual basis of accounting. In the accrual basis of accounting they recognize revenues when the company makes a sale or performs a service regardless of when the company receives the cash. They are familiar with expenses as incurred whether or not the company has paid out cash. Section 3 examines the accrual basis of accounting in more detail.