Accrual basis accounting is a method of tracking and recording financial transactions where revenues are recorded when they are earned, instead of when the cash is received, and expenses are recorded when they are incurred instead of when they are paid. This method is used to give a more accurate picture of a business’s financial health by recognizing transactions as soon as they occur, instead of waiting for payments. Companies that use accrual basis accounting recognize the link between their activities, costs and revenue in a given period, and have greater insight into cash flow management.