Accrual Basis of Accounting

The accrual basis of accounting is a method that records revenues and expenses when they are earned or incurred, rather than when cash is exchanged. For example, if a service is provided in March but payment is received in April, the revenue is recorded in March. Similarly, expenses are recognized when they occur, even if payment happens later. This approach provides a more accurate financial picture of a company's performance over time, reflecting all economic activity, not just cash transactions. It helps in better assessing profitability and financial health.