What does the term "accrual accounting" imply?

Accrual accounting is a fundamental principle in accounting that revolves around recognizing income and expenses when they are earned or incurred, regardless of when the cash is actually received or paid. This means that revenue is recorded when it is earned—typically when goods are delivered or services are provided—rather than when payment is received. Similarly, expenses are recognized when they are incurred, even if payment has not yet been made.

This approach provides a more accurate picture of a company's financial performance and position, as it reflects all economic events that affect the company's financial results, not just those involving cash transactions. By recognizing income and expenses in the period they actually occur, accrual accounting aligns financial reporting with the underlying business activities, giving stakeholders a clearer view of the company's profitability and financial health over time.