Accounting using the accrual basis means transactions and events are recorded in the accounting system as they occur, rather than when money changes hands. This method of accounting is based on the principle that income and expenses should be recorded when they are earned or incurred rather than when they are received or paid. Accruals therefore recognize income when it is due and payable, even if payment has not yet been received. The same principle applies to expenses, which must be recognized when they are incurred, regardless of when payment is actually made. This approach gives a clearer picture of the business’s financial position at any given time, and better reflects the true performance of a business.