Accrual-based accounting is standard business accounting, which assumes there will be accounts payable (Bills to be paid as part of the normal course of business) and/or sales on credit (sales made on account; shipments against invoices to be paid later), as opposed to cash basis only.
For example, most businesses have regular bills such as rent, utilities, and often inventory purchase which are not paid for at the exact moment of purchase, but are invoiced. Most businesses will also not be able to collect on all of their sales immediately in cash, but must bill the purchaser or wait for payment on at least some percentage of their sales (the exact percentage varies by industry).
For more, check out this article: Is Cash or Accrual Accounting Best for Small Businesses?
At Bplans, it's our goal to make it easy for you to start and run your business. The Bplans glossary of common business terms will help you learn about key small business and entrepreneurship topics.
