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Accrual accounting

Accrual accounting is accounting for sales and purchases at the time in which the transactions occurs (as opposed to when payments are made or received).

For example, if an expense is incurred in a period for which no invoice has been received yet, the expense is still declared in the financial statements.  Similarly, if an invoice is issued for sales in one period but not paid until the next period, the invoice is declared in the first period still.

This provides a more accurate financial picture of a business compared to cash accounting.

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