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.
Measured as
Measure Accrual Accounting with the same date, unit basis, and accounting or policy definitions used in the rest of your model.
Misused when
- Assuming accrual profit equals cash available for spending.
- Ignoring changes in working capital when analyzing performance.
Operator takeaway
- 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.
- Tie Accrual Accounting to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Runway and burn: gross vs net burn, working capital, and cash levers if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Accrual Accounting belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
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.