{"id":"concept:accrual-basis","kind":"concept","label":"Accrual Basis","synonyms":["accrual accounting","accrual-basis bookkeeping"],"definition":"Accrual-basis bookkeeping records income when it's earned and expenses when they're incurred, regardless of when the actual cash payment happens.","summary":"Recording a sale the moment you invoice a customer, not when they pay — that's accrual basis. It's a real, common cause of a P&L looking profitable while the bank account hasn't moved, and whether it's the right basis for your taxes is a question for an accountant, not a default assumption.","explanation":["Accrual-basis bookkeeping recognizes a financial event when it's earned or owed, not when money actually changes hands. Invoice a customer for $2,000 of completed work, and accrual accounting counts that $2,000 as income the moment the invoice is issued, sitting in Accounts Receivable until the customer actually pays — not later, when the cash lands in the bank.","The same logic applies to expenses: receive a bill on 30-day terms and accrual bookkeeping records the obligation in Accounts Payable right away, before a single dollar has left the account. This is what lets a business see what it owes and is owed, not just what's already settled in cash.","BalanceMCP doesn't force a single basis on a book. Importing and categorizing bank transactions, the natural default workflow, is inherently close to cash-basis bookkeeping — an expense records when the money actually leaves. The moment Accounts Receivable or Accounts Payable get used to record invoices sent or bills received before they're paid, an accrual element enters the picture, and that's exactly where a P&L and the actual cash in the bank start to diverge.","Which basis applies to a specific business, for tax purposes, is a real question with a real, situation-dependent answer — it depends on structure, size, and jurisdiction in ways that call for an accountant's judgment, not a general guess."],"commonMistakes":["Assuming BalanceMCP enforces one basis automatically — it doesn't; using Accounts Receivable or Payable introduces accrual elements on top of an otherwise cash-basis workflow.","Assuming accrual-basis income equals cash in the bank — an invoiced sale can show as income on a P&L long before the customer actually pays.","Guessing which basis applies for tax purposes instead of asking an accountant — the right answer depends on structure, size, and jurisdiction."],"category":"fundamentals","questions":[{"question":"Does BalanceMCP force accrual-basis bookkeeping on me?","answer":"No — importing and categorizing bank transactions is naturally close to cash-basis. Using Accounts Receivable or Accounts Payable introduces accrual elements on top of that, but nothing forces either basis."},{"question":"Which basis should I use for taxes?","answer":"That depends on your business structure, size, and jurisdiction — it's a real question for your accountant, not something to assume from general guidance."}],"url":"/glossary/accrual-basis","relatedTo":[{"id":"concept:cash-basis","relationship":"related","weight":0.9,"api":"/api/knowledge/concept%3Acash-basis"},{"id":"concept:accounts-receivable","relationship":"related","weight":0.9,"api":"/api/knowledge/concept%3Aaccounts-receivable"},{"id":"concept:accounts-payable","relationship":"related","weight":0.9,"api":"/api/knowledge/concept%3Aaccounts-payable"},{"id":"concept:revenue-recognition","relationship":"related","weight":0.9,"api":"/api/knowledge/concept%3Arevenue-recognition"},{"id":"concept:cash-flow","relationship":"related","weight":0.9,"api":"/api/knowledge/concept%3Acash-flow"},{"id":"concept:profit-and-loss","relationship":"related","weight":0.9,"api":"/api/knowledge/concept%3Aprofit-and-loss"},{"id":"guide:what-cash-flow-tells-you-that-profit-and-loss-doesnt","relationship":"references","weight":0.7,"api":"/api/knowledge/guide%3Awhat-cash-flow-tells-you-that-profit-and-loss-doesnt"},{"id":"account:1200-accounts-receivable","relationship":"references","weight":0.7,"api":"/api/knowledge/account%3A1200-accounts-receivable"}],"referencedBy":[{"id":"concept:cash-basis","label":"Cash Basis","url":"/glossary/cash-basis"},{"id":"concept:cash-flow","label":"Cash Flow","url":"/glossary/cash-flow"},{"id":"concept:revenue-recognition","label":"Revenue Recognition","url":"/glossary/revenue-recognition"},{"id":"concept:adjusting-entry","label":"Adjusting Entry","url":"/glossary/adjusting-entry"},{"id":"concept:accounts-receivable","label":"Accounts Receivable","url":"/glossary/accounts-receivable"}],"license":"https://creativecommons.org/licenses/by/4.0/","attribution":"BalanceMCP — https://balancemcp.com"}