How to Implement the Accrual Method of Accounting for Your Business?

Although accounting is important for every business, they need to decide on which methods to implement in their organization. Businesses can follow two methods in accounting, Cash accounting or Accrual accounting. 

The accrual concept in accounting is implemented by many of the business organizations. In the cash basis of accounting, the financial transactions are recorded when the cash is actually paid out or received. 

While, in accrual method of accounting, the financial transactions are recorded when the expenses are incurred or revenue earned, regardless of money received or not.

Accrual basis of accounting helps to track the expenses and revenue in the given period, instead of actual transactions. By now you must have got the basic understanding about the accrual concept in accounting. Many organizations are now planning to implement this method in their organization.

How is the implementation of the accrual method of accounting done?

As the company recognizes, the expenses incurred and the revenue earned at a specific time period, the date matters a lot when that actually happened. 

The accruals are recorded in the balance sheets for the cash events that occur. In case, when the company earns the revenue which has not been paid yet, makes accounts receivables as an asset account. Whereas, when the business owes the amount which is not yet paid, makes accounts payable as a liability account. So, the financial transactions recording must be made accordingly.

What are the benefits of using accrual accounting?

The benefits of accrual accounting have been experienced by most of the businesses that motivated them to continue implementing it.

Here are some of the benefits of implementing accrual accounting:

1. Better reporting

One of the biggest benefits of accrual accounting is a proper reporting system. All the information in the important financial reports like Balance sheets, Profit and Loss Account, etc. shows accurate financial information about the financial transactions of the business.

2. Better planning and decision making

It allows a proper financial analysis of the business considering proper aspects. This helps organizations to make proper strategic decisions to help them make out better business planning.

3. Proper cash flow management

Although many businesses make good sales, they crumble in inefficient cash flow management. They experience relatively lesser cash while running the business. However, with accrual accounting methods, it is easier to proper cash flow management making businesses keep enough cash while running the business.

4. Compliance with accounting standards

Accounting must be in accordance with proper compliance with the proper standards. There are different globally accepted accounting standards like Generally Accepted Accounting Principles (GAAP) and several others. 

With accrual concept in accounting, it is easier to comply with many of the accounting standards. This method helps to improve the quality of the accounting system.

These are some of the major benefits of implementing accrual method of accounting. It has helped improve the quality of the accounting for businesses immensely.

If you find it difficult to implement the accrual system of accounting for your business organization then you can outsource this task to the experts. Meru Accounting provides outsourced implementation of accrual method of accounting. Their expert team have worked for different types of business and successfully used accrual accounting. Meru Accounting is a well-known accounting services providing agency around the globe.