Which accounting method records revenues and expenses when they are incurred, regardless of cash flow?

Accrual accounting is the method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. This means that income is recognized when it is earned, and expenses are recognized when they are incurred, providing a more accurate picture of a company's financial health at any given moment. This method aligns with the Generally Accepted Accounting Principles (GAAP) because it captures all transactions that affect the financial position, not just those that involve cash movement. As a result, accrual accounting allows businesses to better match their revenues with the expenses incurred to generate those revenues, offering insights into profitability and operational efficiency over time.