Final answer:
Accrual accounting is an accounting method that records the impact of business events as they occur, regardless of whether the transactions affect cash. It focuses on capturing the economic activity of a company, rather than just the cash flow.
Step-by-step explanation:
Accrual accounting is an accounting method that records the impact of business events as they occur, regardless of whether the transactions affect cash. It focuses on capturing the economic activity of a company, rather than just the cash flow. In accrual accounting, revenues are recognized when they are earned, and expenses are recognized when they are incurred, even if the cash is received or paid at a later time.
For example, if a company sells a product on credit, under accrual accounting, the revenue from the sale would be recognized at the time of the sale, even though the payment may come at a later date.
Accrual accounting provides a more comprehensive picture of a company's financial position and performance. It allows businesses to match revenues and expenses accurately, providing a more accurate representation of profitability.