The Benefits of Accrual Accounting

Accrual Accounting provides the truest picture of how your business is doing, because it includes booked sales and purchases (Accounts Receivable and Accounts Payable). Income and expenses are recognized when they are earned or incurred, regardless of when they are received or paid.

Again, this choice may have been made for you, either by the Internal Revenue Service or by your accountant. The IRS requires the accrual method if the production, purchase, and sale of merchandise is part of your business (in other words, if you sell inventory). Your accountant may require financial statements that are based on generally accepted accounting principles (GAAP). Only accrual statements meet GAAP requirements.