Accrual basis

[TrueTears]

What is Accrual basis accounting?

The definition I read is "Accrual basis accounting reports income when earned and expenses when incurred, as opposed to cash basis accounting, which reports income when received and expenses when paid."

What's the difference between "income earned" and "income received" and "expenses incurred" and "expenses paid"? Aren't they the same? Or do they have subtle differences?

Thank you!

[hyperblade01]

There is a difference:

Earned/incurred = doesn't have to be cash, so thats thing such as credit sales and purchases.

Received/paid = when cash is involved



Honestly, I could go into further detail but I'm afraid you'll get confused :S Maybe if you ask a more specific question ?

[Flaming_Arrow]

Income earned- eg. when stock is sold to debtors and the income is earned at the point of sale but the income is not received until the debtors pays up
Expenses incurned - eg. wages that has been accured but not yet paid for, the expenses paid part would be the wages before accured

EDIT: sorry i misterpreted the question before

[kakar0t]

Lets say its pay day for your employees but you can't pay them their wages yet, so you want to pay them same day next month

On that day that you don't/can't pay them, the wage expense has been incurred
The month later that you do pay them, the wage expense has been paid

Scenario 2.

You make a credit sale, customer will pay a month later
Day of credit sale, income incurred
Day of receiving payment for that credit sale, income received

I hope my re-wording of hyperblades answer was helpful

[TrueTears]

Thanks guys for all the help, I understand it now!!

[Fyrefly]

Lets say its pay day for your employees but you can't pay them their wages yet, so you want to pay them same day next month

On that day that you don't/can't pay them, the wage expense has been incurred
The month later that you do pay them, the wage expense has been paid

Scenario 2.

You make a credit sale, customer will pay a month later
Day of credit sale, income incurred EARNED
Day of receiving payment for that credit sale, income CASH received

I hope my re-wording of hyperblades answer was helpful

Your examples are fantastic, but you've made an error on a very important point (plz don't hate me)
Income is never 'incurred' or 'received' - I'm sure it was just a copy/paste error or something, but such terminology is incorrect.