accruals basis

The matching of *revenues and *expenses to the periods in which they are earned or incurred. In contrast to a *cash basis approach, which *recognizes revenues and expenses in line with the receipt or payment of cash, an accruals basis of accounting is based on the timing of the underlying transaction. For example, when *interest payable to a bank is incurred evenly over a year, but payment falls due only at the year-end, the accruals basis of accounting requires recognition of the interest expense on a monthly basis. Most systems of *Generally Accepted Accounting Principles require an accruals basis of accounting. The accruals basis operates through the mechanisms of *accrued revenue, *unearned revenue, *accrued expenses, and *prepaid expenses. Deliberate bending or circumvention of the accruals concept is a common *creative accounting technique.