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What Is Double Entry Accrual Accounting?

Updated April 17, 2017

When deciding how to account for transactions, business owners must choose between a single or double-entry system and the accrual or cash basis method. Double-entry accrual accounting is one of the most common approaches.

History

Fra Luca Bartomomeo de Pacioli, known as the father of modern accounting, published the first known work about double-entry accounting in the mid 15th century. His book possessed the same fundamental elements and methods that accountants use today.

Definition

A double-entry accounting system tracks financial activity in which the debits and credits of each transaction equal zero. Double-entry accrual accounting also employs the principles of accrual basis accounting, most notably the matching principle.

Methodology

The chief rule in double-entry accrual accounting, the matching principle, requires accountants to record transactions in the period the work took place regardless of when cash exchanged hands. Accountants create entries called accruals and deferrals to comply with this requirement.

Examples

Common accounts specific to double-entry accrual accounting include accounts payable trade, accrued salaries, accrued vacation, prepaid insurance, unearned revenue and deferred rent. One side of each entry affects the accrual or deferral account and the other side affects an account that appears on the income statement.

Advantages and Disadvantages

Double-entry accrual accounting produces financial statements that reflect all income and expenses related to a particular accounting period, making it an effective approach to analysing revenue and costs. However, accountants must prepare a separate cash flow reconciliation to gauge actual cash reserves.

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About the Author

Stacey Baker began writing Web content in 2006, when she joined the team at Skepchick, a site focused on critical thinking. Her articles cover topics such as business, technology, culture, nutrition and psychology. She has also written for the website Curiosity Aroused. Baker holds a Master of Business Administration in international business from Florida Atlantic University.