Accrual basis accounting is an accounting method that requires revenues to be recorded in the financial statements when they are earned and expenditures to be recorded in the financial statements when they are incurred. The timing of this recognition in the financial statements can differ from the timing of the related cash flows therefore revenues and expenditures may be recorded in the financial statements either before or after the related cash flows have occurred.

The application of accrual basis accounting produces financial statements that report more completely than cash basis accounting the economic activities of an entity.

This method of accounting is commonly applied by large private sector entities and must typically be applied by private sector entities that have either equity (shares) or debt securities (bonds) that are publicly traded.

The public sector lags the private sector in its adoption of accrual basis accounting but the growing demand from interested stakeholders (e.g lenders, citizens, donors) for a more complete reporting of economic activities by public sector entities is increasing the adoption rate.