#accrual-accounting
Accrual method accounting principles, conversion from cash basis, and revenue recognition timing
Net income flows into retained earnings and opens operating cash flow; ending cash must tie to the balance sheet to the dollar.
Adjusting entries record what timing left out; correcting entries fix prior errors. Reverse only accruals — reversing a correction resurrects the error.
The IRS lets accrual-basis employers deduct unpaid year-end bonuses only if the liability is fixed by December 31 and paid by March 15.
Accruals book revenue and expenses before cash moves; deferrals hold cash on the balance sheet until earned or used.
An accrual-basis deduction needs a fixed liability, a determinable amount, and economic performance under IRS Section 461(h) — miss one and it moves a year.
Unconditional pledges are booked at present value when promised — conditional gifts wait until the barrier falls.
Accrued revenue is earned-but-unbilled income (an asset); deferred revenue is unearned cash (a liability) — each clears with its own adjusting entry.
A soft close locks the books fast on estimates; a hard close verifies every account. Close soft monthly, hard quarterly — and book year-end fixes in period 13.
If your agency controls client media before it reaches the client, ASC 606 says you are a principal — the full billing is your revenue.
Reconcile every balance sheet account, book year-end accruals, and file Forms 1099 on time — a six-phase IRS-ready close checklist for small businesses.
A contribution is conditional only with both a barrier and a right of return — otherwise your nonprofit books the grant as revenue now, not a liability.
Operating cash flow, not net income, shows whether your business generates cash — read all three sections in five minutes a month.
