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.

Disclaimer: The content included in this glossary is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this glossary. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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