Accrual basis accounting is an accounting method that recognizes the effects of transactions and other events as they occur, regardless of when the cash associated with them is received or paid out. This approach is used by companies to more accurately reflect their financial performance and position, as it aligns revenue recognition with the time period in which a sale was made and expenses are recorded when incurred (rather than when cash changes hands). For example, if you buy items from a wholesaler on credit, you record the transaction as soon as the purchase is made—even though you won’t pay for it until later. This helps businesses better monitor their income and expenses throughout the year rather than just at the end.