Which statement correctly describes accrual basis accounting?

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Accrual basis accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid. This follows the idea that the financial results should reflect economic activity in the period in which it occurs, not just when cash moves. Revenue is recorded when the seller has delivered the goods or performed the service and collectibility is reasonably assured. Expenses are recorded in the same period as the related revenues (the matching concept), even if the cash outlay happens later.

So, revenue being recognized when earned and expenses when incurred, independent of cash flows, is the essence of accrual accounting. For contrast, cash basis would record revenue only when cash is received and expenses only when cash is paid, which isn’t what accrual accounting does. The statement about all financial information being in physical units isn’t about timing, and the idea that only year-end adjustments occur isn’t accurate—accrual adjustments happen as transactions occur to keep the financials aligned with the underlying activity.