Accrual Basis or Accrual Method is an accounting method whereby income and expense items are included in taxable income or expense as they are earned or incurred, even though they may not yet have been received or actually paid in cash.
A 'Change in Accounting Method' refers to an alteration in the overall method of accounting or a change in a material item used in an overall accounting plan. This could involve changes such as switching from cash basis accounting to accrual basis accounting, or altering inventory valuation methods.
The matching concept in accounting requires that expenses be matched with the revenues they generate within the same accounting period, ensuring accurate financial reporting.
A detailed document that provides an individual's financial health using often the accrual basis of accounting.
Benefits provided by an employer to former employees, typically those who have retired. The accounting treatment for these benefits, including health care and pensions, varies based on whether they are part of a defined-contribution or defined-benefit pension scheme.
The accrual of bad-debt expense based on the projected worthlessness of receivables or prior experience with uncollectible receivables. The reserve method is permitted only for some small banks and thrift institutions with assets of $500 million or less, while other accrual taxpayers must use the specific charge-off method.
A sale represents an exchange of goods or services for money. The concept and details of a sale vary across fields such as finance, law, marketing, and securities trading.
The specific charge-off method allows for the deduction of bad debt at the time a specific receivable is determined to be uncollectible, following the exhaustion of all possible collection methods. Accrual basis taxpayers are required to use this method for tax purposes, as they can no longer accrue reserves for bad debts.
Timing differences arise when there are differences between the recognition of income and expenses for tax purposes and their recognition in financial statements. These discrepancies are temporary and typically reverse over subsequent periods.
