The accrual basis records income:

### Understanding Accrual Accounting In accounting, there are two primary methods for recording financial transactions: **Cash Basis** and **Accrual Basis**. 1. **Cash Basis Accounting:** This method records income only when cash is physically received. It is simple but often fails to accurately represent a company's financial performance over a specific period. 2. **Accrual Basis Accounting:** This method records income when it is **earned**, and expenses when they are **incurred**, regardless of when the cash actually changes hands. This follows the **Revenue Recognition Principle**. #### Why Accrual is Used The Accrual basis provides a more accurate picture of a company's financial health. For example, if a company provides services in December but doesn't get paid until January, the income is recorded in December (when the work was done). This ensures that the income matches the period in which the resources were used to generate it (the **Matching Principle**). Therefore, the accrual basis records income **when earned, regardless of receipt**.