What is a key aspect of accrual accounting?

Accrual accounting is fundamentally based on the principle that transactions should be recorded at the time they occur, reflecting the economic activity of the business rather than the timing of cash flows. This approach enhances the accuracy and relevance of financial statements by recognizing revenues and expenses in the period they are earned or incurred, regardless of when the actual cash transactions happen.

For example, if a company delivers a service in December but does not receive payment until January, under accrual accounting, the revenue from that service would still be recorded in December. This provides a clearer picture of the company's financial performance and position during that specific time frame.

Other options do not align with the accrual accounting principles. For instance, recognizing revenues only when cash is received or expenses only when paid aligns with cash accounting rather than accrual. Asset recognition strictly at the point of sale fails to account for transactions that have economic significance before cash is exchanged.