Accrual and Cash Basis Accounting
In accrual basis of accounting is based on the matching principle, which says that revenue is recorded when it is earned (not when the money actually comes in) and expenses is recorded when they are incurred (not when they are paid). Companies often choose the accrual basis because they want to show earned revenue along with the expenses that were incurred to earn that revenue.
In cash basis of accounting, revenue is recorded when cash is received and expenses are recorded when they are paid. Service companies use the cash basis because is simpler and more convenient than the accrual basis. Companies with inventory do not use this method. Also, if this accounting method is used, the revenue and expenses may not show up in the same accounting period.