Final answer:
A transaction in accrual basis accounting is recorded when the event that generates revenue or incurs an expense occurs, not when cash is exchanged. This reflects the matching principle, which aligns expenses with the revenue generated in the same period.
Step-by-step explanation:
In accrual basis accounting, a transaction should be recorded when the event that generates revenue or incurs an expense occurs, regardless of when the cash is actually received or paid.
This accounting method is grounded in the matching principle, which dictates that expenses should be recognized in the same period as the revenues they help to generate. Therefore, if a company performs a service in December, it would record the revenue for this service in December, even if payment is not received until January.
In accrual basis accounting, a transaction should be recorded on the date on which it occurs, regardless of when the cash is exchanged.
This ensures that revenues and expenses are recognized in the period in which they are earned or incurred, respectively. For example, if a service is performed on January 15th but the payment is received on February 1st, the transaction will be recorded on January 15th.