Accrual basis

Legal Definition and Related Resources of Accrual Basis

Meaning of Accrual Basis

A method of keeping accounts which shows expenses incurred and income earned for a given period , although such expenses and income may not have been actually paid or received in cash. See First national Bank v state , 29 So.2d 673.

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Accrual Basis in Historical Law

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Meaning of Accrual Basis in the United States Tax System

Accrual Method

An accounting method whereby income and expense items are included in taxable income or expense as they are earned or incurred, even though they may not yet have been received or actually paid in cash. Taxpayers having inventories must use the accrual method. Exceptions to this method include the recognition of bad debts and payments received in advance for services or merchandise. Comes from IRC (check if this IRC provision is current here)§446(c)(2).

See also other Tax Terms and Definitions in U.S.A.

Cash basis.

Popular U.S. Tax Words

What does Accrual basis mean in American Law?

The definition of Accrual basis in the law of the United States, as defined by the lexicographer Arthur Leff in his legal dictionary is:

A method of accounting in which revenue is recorded in the period in which it is earned, whether or not it is actually collected in that period, and expenses are recorded when incurred, even if not paid until a later period. For instance if, on December 15, 1978, a company sold $10,000 worth of finished goods, and also bought $5,000 worth of raw materials, but didn’t receive the $10,000, or disburse the $5,000, until January 15, 1979, it would record the $10,000 credit and the $5,000 debit as 1978 transactions. If one kept one’s books on a “cash basis,” however, one would not record the $10,000 sale or the $5,000 purchase until the monies were actually paid, i.e., they would be treated as 1979 transactions. Most businesses, and almost all large ones, keep their books on an accrual basis, and most are required to do so for income tax purposes. Naturally, sticky accounting problems inhere in deciding when revenues are “earned,” expenses “incurred,” and, for that matter, when both are “paid.”

Meaning of Accrual Basis

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See Also

  • Accrual Accounting Method Under Accounting Method

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