Which of the following best describes accrual accounting?

Accrual accounting is best described by the principle that revenues and expenses are recorded when they occur, regardless of the timing of cash flow. This means that a company recognizes income when it is earned and expenses when they are incurred, rather than when cash is actually received or paid. This approach provides a more accurate picture of a company's financial position and performance over a given period because it accounts for all resources that have been consumed and earned, not just those that involve cash transactions.

For example, if a business provides services in December but does not receive payment until January, under accrual accounting, the revenue would still be recorded in December when the service was performed. This leads to financial statements that better reflect the company's activities during the period, making it easier for stakeholders to assess the company's profitability and financial health.