Accrual Method Law and Legal Definition

Accrual method is a form of business accounting method under which the income received will be reported in the year in which the income was earned rather than reporting the same at a time when the payment was received. Similarly, expenses will be reported in the year in which such expenses were incurred rather than reporting at a time when the expenses were paid. For example, a billing made to a customer in December 2004 must be reported in the same year even if the customer did not pay it in the same year. Accrual method is used in business firms that use inventory for recording the purchases and sales.