Accrual basis
Under the accrual basis, revenue and expenses are recorded when they are earned or incurred, not when cash moves.
Profit = Revenue earned − Expenses incurred | Change in cash = Cash in − Cash out (a different figure)
Why it matters
A business can be profitable and short of cash at the same time, or the reverse. Keeping the two measures apart is what lets each of them tell the truth.
Where it appears in a CFO+ model
- In costs paid in advance, such as insurance and licences, that cover a period beyond the payment date.
- Across the statements of the model: profit on the accrual basis and cash in the cash flow.
Learn the concept in the Academy
Activities where it shows up
- Agriculture & Production
- Café & Coffee Shop
- Catering
- E-learning
- Fintech
- Fuel Station
- Gym & Fitness Club
- Hospital
- International Freight & Clearance
- Jewelry & Gold
- Maintenance & Technical Services
- Medical Laboratory
- Metal Machining & Fabrication
- Printing & Packaging
- Real Estate Brokerage
- Real Estate Development
- Tourist Camp
- Training & Development
- University or College
- Warehousing & Storage
No figures are published: a definition and a formula only.