Accrual accounting is an accounting method in which expenses are recognized when the expense occurs, regardless of when a payment is made. This ensures accuracy when invoices may not be received in the same quarter or fiscal year as the expense was incurred. An expense is considered to have occurred and be recognized when the goods or services have been delivered and utilized.
For example, if an event takes place in January but the invoices will be received after the event has taken place in February, we must make sure the cost of the event is recorded in the month that it happened, in this case – January.
Accrual accounting ensures accurate forecasting and predictability and provides a more realistic idea of income vs expenses over time, therefore, increasing the credibility and accountability of marketers to the CMO and CFO.
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