Crash Course in Accounting and Financial Statement Analysis, Second Edition

Putting It All Together: The Accrual Basis of Accounting

Revenues and expenses are recognized and recorded when an economic exchange occurs, not necessarily when cash is exchanged. This is the core principle of the accrual basis of accounting, which measures a company’s performance by recognizing economic events regardless of when cash transactions happen.

Matching Principle in Action Costs associated with the production of books by Amazon.com must be recorded in the same period as the revenue from their sale. Costs associated with the production of airplanes by Boeing must be recorded in the same period as the revenue from their sale.