accrual accounting

Firms use the accrual method of accounting to record revenues and expenses when they are recognized, not when cash is actually transferred. Revenues are recorded when the sale has been completed, and expenses are recorded when the goods and services that generate the expenses are matched to the revenue. Alternatively, cash-based accounting records sales and expenses when cash is actually received or used. Accrual-based accounting improves a firm’s ability to match expenses with revenues. In most cases, U.S. generally accepted accounting principles (GAAP) require accrual-based accounting.