Accrual accounting is an accounting method that records financial transactions when they are incurred, rather than when the cash is received or paid. Accruals are based on the matching principle, which states that expenses should be recorded in the same period as the revenue they help to generate. The purpose of accrual accounting is to provide a more accurate representation of a company's financial performance and financial position by recognizing revenue and expenses in the period in which they are earned or incurred, regardless of when the cash is received or paid.

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Under accrual accounting, a company records revenue when it is earned, even if the cash has not yet been received. For example, if a company provides a service in January but does not receive payment until February, the revenue would still be recorded in January under accrual accounting. Similarly, a company records expenses when they are incurred, regardless of when the payment is made. This method provides a more accurate representation of a company's financial performance and position by matching expenses with the revenue they help to generate.

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