What is accruals basis accounting?
Definition of accruals basis accounting
Accruals basis accounting, also known as accrual accounting or traditional accounting, is an accounting method where a business’s income and costs are recorded at the date displayed on an invoice it issues or a bill it receives.
This means that income and costs are recognised on the business’s books regardless of when the money changed hands. Accruals basis accounting is the standard accounting method for larger businesses, and all limited companies and limited liability partnerships are required to use it.
Sole traders and partnerships with a turnover of under £150,000 can choose to use cash basis accounting instead, where income or costs are recorded at the date the money is either received or paid out.
You can find out more about the difference between accruals basis accounting and cash basis accounting in our dedicated guide.