accrual accounting

Intermediate 💰 Finance / Accounting

Definition

An accounting method that records revenues and expenses when they're earned or incurred, not when cash actually changes hands. It's the difference between promising to pay someone and actually opening your wallet.

Example Usage

Thanks to accrual accounting, the company reported a million in revenue even though customers hadn't paid yet.

Origin

Derived from 'accrue,' from Old French 'acreue' meaning 'growth' or 'increase,' formalized in accounting practice in the early 20th century.

Fun Fact

The opposite is 'cash basis accounting,' which your local pizza shop probably uses but the SEC definitely doesn't allow for public companies.

Source: GAAP accounting principles

Related Terms

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net interest margin

The difference between interest income banks earn on loans and interest they pay on deposits, expressed as a percentage. The fundamental measure of whether a bank's basic business model actually works.

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share

A tiny slice of corporate ownership that lets you pretend you're a business mogul while actually just gambling on quarterly earnings reports. When it goes up, you're a financial genius; when it drops, the market is 'irrational.' Comes with the bonus feature of limited liability, meaning you can't lose more than you invested (small consolation when you've invested everything).

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Merger

When two companies combine to become one larger, more dysfunctional company with twice the middle management. It's always sold as a "merger of equals" and always ends with one side updating their resumes within six months.

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Liquidity

How quickly you can turn an asset into cash without losing value, which is finance's polite way of asking how fast you can run to the ATM. Your checking account is highly liquid; your collection of vintage Beanie Babies is decidedly not.

💰 Finance / Accounting
Intermediate

depletion

The exhaustion of a resource faster than it can naturally replenish itself, whether that's oil reserves, soil nutrients, or your marketing budget by mid-quarter. In accounting, it's the method for allocating the cost of extracting natural resources. Basically, fancy terminology for "we used it all up."

💰 Finance / Accounting
Intermediate

solvency

The ability to meet long-term obligations and survive beyond next quarter—unlike liquidity, which only cares about immediate bills. A company can be liquid but insolvent (cash now, doomed later) or illiquid but solvent (asset-rich, cash-poor).

💰 Finance / Accounting

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