Dictionary / Accrual Costing
What does Accrual Costing mean in accounting?
Quick definition
Accrual & timingThe expensing of goods and services as they are applied or consumed. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
Read more below
Examples
Paper used, not paper bought
You run a print shop. On February 6 you buy a $640 pallet of cover stock from a paper supplier and code the bill to inventory. By February 28 you have used $390 of that pallet on client jobs, so at close you move $390 to materials expense or cost of sales and leave $250 on the balance sheet. The February P&L shows paper consumed, not the full supplier bill. In QuickBooks Online or Xero this is a month-end inventory adjustment from a count, not a recode of the original bill to expense.
A linen contract dumped to one month
You run a salon. On November 3 you pay $960 to a linen service for a four-month towel service and code the whole bank-feed hit to laundry expense. By November 30 you have used only one month of that contract, so recode $720 from laundry expense to prepaid expense and leave November with the $240 of service you consumed. Paying the linen service is not the consumption event. An unpaid-bill accrual is a different entry; this term is about using the service, not about a bill arriving late.
Why it matters
Accrual costing expenses goods and services when you use them, not when you buy them. Unused stock stays on the balance sheet as inventory or a prepaid expense until you consume it. You will post this at the end of the accounting period if you buy supplies, materials, or prepaid services in bulk and draw them down later. Expense the whole purchase on the buy date and a stock-up month looks worse than it is, while later months look too cheap; do not mix this with an accrual journal, which books a cost before the bill arrives, or with accrual basis, which is the file-wide method, not a consumption rule.
Keep learning
Start with the bookkeeping basics, then compare software when you are ready to pick a tool.
Getting startedBookkeeping basics for small-business ownersWhat bookkeeping is, the records you need, double-entry in plain English, and a monthly rhythm that fits a 1–50 person shop.Updated October 4, 2026
RolesWhat does a bookkeeper do?A bookkeeper records bills, invoices, and bank activity so your books stay current. See the weekly work, the month-end close, and what they do not do.Updated August 18, 2026
Monthly closeMonthly bookkeeping: what to close each monthMonth-end is the job: reconcile banks and cards, age bills and invoices, check payroll, then read the reports. A close checklist for small-business owners.Updated August 18, 2026
Expense ManagementThe 10 Best Expense Management Software for Small BusinessWe ranked the 10 best expense management tools for small business, scored on features, ease of use, and value, with honest tradeoffs for each.Updated August 8, 2026Frequently asked questions
What is Accrual Costing in bookkeeping?
The expensing of goods and services as they are applied or consumed.
When should I use Accrual Costing?
Use Accrual Costing when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Accrual Costing?
Accrual Costing is used for accrual costing entries, while Abandonment covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.