What is the main characteristic of accrual accounting?

Accrual accounting is fundamentally characterized by the recognition of income and expenses when they are earned or incurred, rather than when cash is actually exchanged. This means that revenue is recorded when a product is delivered or a service is performed, regardless of when the payment is received. Similarly, expenses are recognized when a liability is incurred, rather than when it is paid.

This approach provides a more accurate picture of a company’s financial position and performance during a specific period, as it aligns revenue with the expenses incurred to generate that revenue. By doing so, accrual accounting adheres to the matching principle, which is crucial for financial reporting, as it helps stakeholders understand the true economic reality of the business operations.