How does accrual accounting differ from cash accounting?

Accrual accounting is fundamentally distinct from cash accounting in that it recognizes revenues and expenses at the time they are earned or incurred, rather than when cash is exchanged. This principle means that in accrual accounting, a company will record revenue when it has fulfilled its obligation to deliver goods or services, regardless of whether it has actually received the cash payment. Similarly, expenses are recorded when they are incurred, even if the cash payment has not yet been made.

This method provides a more accurate picture of a company's financial position and performance during a specific period, as it aligns income and related expenses to the same timeframe, allowing for better analysis of profitability and financial health. Accrual accounting also adheres to the matching principle, which is a fundamental concept in accounting that requires expenses to be matched with the revenues they generate in the same period, further enhancing the quality of financial reporting.

The other options do not accurately reflect the principles of accrual accounting and can lead to misunderstandings in financial reporting. Accrual accounting is not merely concerned with cash transactions, and it does not ignore receivables and payables, which are critical components of a business's financial management.