How To Master Accounting Accruals

Revenue recognition is the process of accounting for and recording revenue from sales or services rendered in a specific period of time. The purpose of revenue recognition is to ensure that businesses only recognize revenue when it is earned, and not before or after.

This concept is known as an accrual.

An accrual means that businesses record revenue when it is earned, regardless of when cash is received.

For example, when a business leases property, it generally records unearned rent on an accrual basis. Unearned rent is the amount of rent that has not yet been earned by the business. This is generally calculated by multiplying the number of months in the lease term by the monthly rent amount. The unearned rent is then recorded as a liability on the balance sheet, and it is gradually recognized as revenue over the course of the lease term.

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