What is Accrual Basis?
Accrual basis accounting recognises revenues when they are earned and expenses when they are incurred, regardless of when cash is received or paid. It is required under IFRS and produces a more accurate picture of financial performance than the cash basis.
How It Works
- Record sales when the customer takes legal control of the goods or service, not when paid.
- Record purchases and expenses when the obligation arises, not when settled.
- Use accrued and deferred items to align revenues and expenses with the correct period.
- Reconcile to cash flow using the indirect or direct method at period-end.
Saudi Context
All Saudi entities subject to IFRS, including Tadawul-listed companies and large LLCs, must use the accrual basis. ZATCA also requires accrual-based statements for VAT registration thresholds above SAR 375,000 and for corporate income tax filings.
Example
A Riyadh consultancy delivers a project worth SAR 60,000 in November but the client pays in February. Under accrual accounting, the SAR 60,000 revenue and related expenses are recognised in November, not February.