What is the result of using the accrual basis of accounting?

The accrual basis of accounting provides a framework that enhances the matching of revenues with expenses within the same accounting period. This method recognizes revenues when they are earned, regardless of when cash is actually received, and records expenses when they are incurred, not when they are paid. This allows businesses to better align their income statements with the economic activity that occurs during a period, offering a clearer picture of profitability.

For example, if a company provides a service in December but doesn't receive the payment until January, under the accrual basis, the revenue would still be recognized in December's financial statements. This matching principle is essential for accurate financial reporting and can provide stakeholders with a more reliable view of the company’s financial performance over time. By achieving this alignment, the accrual basis contributes to the overall quality and reliability of financial reporting, making it a preferred method under generally accepted accounting principles (GAAP).