What is the Accrual Basis?

In contrast to the cash basis approach, the accrual basis determines a business’ balance sheet by recording expenses and revenue as soon as they are formally incurred — even though no funds have been paid out or received.

For example, it will take into account bills that you don’t plan to pay until later in the year. But it also takes into accounts payable that you haven’t yet collected (and may never ever collect).

The accrual basis can provide a more accurate long-term overview of a business’ financial health.

Real estate investors can use either methods and, sometimes, even both approaches depending on the type of investment property. On the one hand, the accrual basis approach may be a more conservative view because it counts debts even if they’re not paid or payable. On the other hand, because it counts income not yet received, it may prove to be too rosy a picture.

For more information, see also the following entries:

• :Basis:
• :Cash Basis:
• :Investment Property:
• roperty Management:
• :Real Estate: