Accrual accounting is a financial accounting method in which transactions are recorded when they occur, rather than when cash is exchanged. This means that revenue is recognized when it is earned and expenses are recognized when they are incurred, offering a more accurate depiction of a company's financial position during a given period. For example, if a company provides a service in December but does not receive payment until January, the revenue would still be recorded in December under accrual accounting.

One benefit of accrual accounting is that it allows businesses to match revenues and expenses more accurately to the periods in which they occur, which provides a clearer picture of performance. However, it can also be more complex to manage compared to cash accounting because it requires tracking accounts receivable, accounts payable, and various other adjustments. Accrual accounting is critical for preparing financial statements such as the balance sheet and income statement, as it ensures they reflect the company's true financial activities for the period.

Accrual accounting is often used under the Generally Accepted Accounting Principles (GAAP) in many countries because it provides a standardized way of recording transactions and greatly aids in financial reporting and analysis.