Final answer:
Cash accounting recognizes revenue and expenses when cash is received or paid out, while accrual accounting recognizes revenue when it is earned and expenses when they are incurred. The revenue recognition principle states that revenue should be recorded when it is earned, and the matching principle states that expenses should be recorded in the same period as the revenue they help generate.
Step-by-step explanation:
In accounting, there are two methods of recording transactions: cash accounting and accrual accounting.
Cash accounting recognizes revenue and expenses when cash is received or paid out. This method is commonly used by small businesses or individuals.
Accrual accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged. This method provides a more accurate picture of a company's financial health and is commonly used by larger businesses.
The revenue recognition principle states that revenue should be recorded when it is earned, while the matching principle states that expenses should be recorded in the same period as the revenue they help generate.