Accrual Basis or Accrual Method

Accounting method whereby income and expense items are included in taxable income or expense as they are earned or incurred, even though they may not yet have been received or actually paid in cash. Taxpayers having inventories must use the accrual method. Exceptions to the accrual method for tax purposes include the recognition of bad debts and payments received in advance for services or merchandise. See also Cash Basis.