Definition
Accrual accounting recognizes revenue when earned and expenses when incurred, not when cash is received or paid.
Example
You deliver a $12,000 annual contract in January; accrual revenue is $1,000 per month, even if cash is prepaid.
How to use it
- Accrual profit can look healthy while cash is negative (working capital).
- Use accrual statements with a cash flow view for runway decisions.
- Track deferred revenue and receivables to connect accruals to cash timing.
Common mistakes
- Assuming accrual profit equals cash available for spending.
- Ignoring changes in working capital when analyzing performance.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Accrual Accounting" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Runway and burn: gross vs net burn, working capital, and cash levers) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Multiple Valuation Calculator: Estimate enterprise value and equity value from a metric (ARR or revenue) and a valuation multiple (with net debt adjustments).
- DCF Sensitivity Calculator: Estimate how enterprise value changes with discount rate and terminal growth assumptions (simple 3x3 sensitivity).
- Loan Payment Calculator: Compute monthly payment, total interest, and total paid for a loan using amortization.
- APR to APY Calculator: Convert APR to APY (and APY to APR) given compounding frequency.
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
Guides
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.