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Finance a la shmoop... what is accrual accounting? well there are two

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religions in the way in which beans get counted the first is cash accounting [Cash accounting building]

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which just tracks cash in the door and cash out the door in any given period [Cash enters door and exits]

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the second is accrual accounting which tries to guess or impute the values

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coming in and going out in a given firm hoping to give a true picture of how

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well or poorly a company is performing financially and you might ask how cash

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and accrual accounting can be different like aren't beans just beans that you

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count well stay tuned here in accrual accounting you might have an obligation

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like an employee bonus which you think is highly likely to be paid at the end [Employee happy at getting a bonus]

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of the year almost treated like debt the employee makes 6 grand a month and is

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very likely due 10 grand in bonus money at the end of the year it's payable on

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December 31 that's when the cash would go out the door of the company but given [Cash exiting the door]

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that it's highly likely to be paid or earned by the employee so they'd have a

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legal claim on that 10 grand the company using accrual accounting would accrue

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the liability labeled something like bonuses or or is it bony well something

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like that bonus is payable.. and would accrue the

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value of 10 grand divided by 12 because that's the number of months in a year in

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California anyway or about 833 dollars a month throughout the year that's how you [Employee bonus divided by 12 months calculation]

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would accrue for that likely bonus now promising an employee a bonus and not

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giving it to them after they've earned it well that would be a cruel accounting [Person holds out cash to employee and takes it away]

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a totally different thing and much more mean-spirited

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