Accrual Basis of Accounting

• Accrual accounting attempts to present a better picture of the financial effects of transactions affecting the financial position of the company during a particular accounting period, rather than on the basis of when the actual cash receipts or payments are made.
  
  

Revenue Recognition

• According to accrual accounting, revenues are recognized during the accounting period when the revenue is actually earned not when the cash payment is received by the business entity. Revenue is recognized when a transaction occurs and revenue is realized or realizable and revenue is earned.
  
  

Expense Recognition

• In general, expenses are recognized and recorded in the accounting period when the actual expense takes place not when a cash payment is made for the expense. According the matching principle of accounting, expense are recognized and matched with the accounting period in which related revenues are recognized.