A method of accounting where revenues and expenses are recorded in the books of a business when they are incurred, rather than when cash is received or paid. For example, a business following the accrual method of accounting would, when it sells a product on credit, record the amount it expects to collect from the customer as revenue immediately even though it has not received any cash yet. This is in contrast to the cash method of accounting, usually followed by small businesses, where revenues and expenses are recorded when cash flows into and out of the business respectively.
