Glossary
What is accrual accounting?
What the accrual basis means, why companies must use it, and how one credit sale lands in the month it was made rather than the month it was paid.
Updated
In short
Accrual accounting records income when it is earned and expenses when they are incurred, whatever the payment date. SimpleERP books on the accrual basis: posting an invoice records the sale and the receivable at once.
Accrual accounting records income when it is earned and expenses when they are incurred, regardless of when money changes hands. A credit sale counts in the month of the invoice, and a bill counts in the month the goods or service arrived. In India it is also called the mercantile system, and companies must keep their books on this basis.
Accrual accounting: a worked example
On 28 September 2026 Lakshmi Steel Furnitures invoices Ravi Stores ₹50,000 plus 18% GST for steel racks. Ravi Stores pays on 15 October. The sale counts in September.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 28 Sep 2026 | Accounts Receivable: Ravi Stores | ₹59,000 | |
| 28 Sep 2026 | Sales | ₹50,000 | |
| 28 Sep 2026 | CGST Payable | ₹4,500 | |
| 28 Sep 2026 | SGST Payable | ₹4,500 | |
| 15 Oct 2026 | Bank (HDFC) | ₹59,000 | |
| 15 Oct 2026 | Accounts Receivable: Ravi Stores | ₹59,000 |
FAQ
Questions, answered
Is accrual accounting compulsory in India?
For companies, yes: the Companies Act requires books on the accrual basis. Other businesses may choose cash or mercantile under the Income Tax Act, but must follow the chosen method consistently. Ask your CA which applies to your business.
Why use accrual accounting in a small business?
It shows the profit you actually earned in a month, including sales not yet paid and bills not yet settled. It also gives you receivables and payables, so you know who owes you and whom you owe at any moment.
Does GST follow the accrual basis?
GST on goods is generally due on the invoice date or the date of supply, not the date the customer pays. That is one reason accrual books suit GST businesses: the tax and the sale land in the same month.
How do I record an expense with no bill yet?
Post a manual journal at month end for the estimated amount, debiting the expense and crediting a payable account, then reverse it on the first of the next month. When the real bill arrives, record it as usual.
Related
Keep reading
Cash basis accounting
Recording income when money arrives and expenses when money leaves, ignoring unpaid invoices and bills.
Read moreAccrued expense
A cost already incurred but not yet billed or paid at the end of a period, recorded as a liability.
Read moreAccounts receivable
Money customers owe for goods and services already invoiced.
Read more
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