Accrual Accounting Explained
Accrual accounting records income when it is earned and expenses when they are incurred — regardless of when cash changes hands. This is the standard required under IFRS (International Financial Reporting Standards) and used by Kounted for all clients.
Accrual vs Cash Accounting
| Scenario | Cash Accounting | Accrual Accounting |
|---|---|---|
| You invoice a client in March, they pay in April | Income recorded in April | Income recorded in March |
| You receive a service in December, invoice arrives in January | Expense recorded in January | Expense recorded in December |
| You prepay 12 months of office rent in January | Full expense in January | Expense spread over 12 months |
Why Accrual Accounting Matters in the UAE
Corporate Tax compliance — UAE CT is assessed on accounting profit with adjustments. Accrual-based accounts give the correct starting point for CT calculations.
VAT accuracy — UAE VAT uses the accrual (invoice) basis by default. Accrual bookkeeping aligns your records with your VAT return.
Management decisions — Profit reported under accrual accounting more accurately reflects the true performance of your business in each period.
Banking and investor requirements — Lenders and investors require IFRS-compliant (accrual) financial statements.
Common Accrual Adjustments Kounted Posts Monthly
- Accrued revenue — income earned but not yet invoiced
- Accrued expenses — expenses incurred but not yet billed (e.g. legal fees, utilities)
- Prepayment amortisation — spreading prepaid costs over their benefit period
- Depreciation — allocating the cost of fixed assets over their useful lives
If you are currently on cash-basis records, Kounted can convert your books to accrual accounting as part of onboarding.