Cost vs accrual accounting is a method used by businesses to determine when and how to report the value of their assets and liabilities. It’s based on two principles: the cost principle, which states that assets and liabilities should be reported at their original price, and the accrual principle, which states that expenses and revenue should be reported when they are earned or incurred, regardless of when the associated cash flow occurs. By recording transactions in this way, businesses are able to get an accurate picture of their financial situation from period to period, allowing them to make informed decisions regarding financial planning and budgeting.