What occurs during the accrual method of accounting regarding expenses?

In the accrual method of accounting, expenses are recorded when they are incurred, regardless of when cash is paid. This means that a company recognizes an expense at the time it is earned, which aligns with the principle of matching revenue with the expenses that helped generate that revenue during the same period. This method provides a more accurate picture of a company's financial position and performance than the cash basis of accounting, which only records expenses when payment is made.

By recognizing expenses in the period they occur, the accrual method allows businesses to see their financial commitments and liabilities, providing critical insights into their operational efficiency and financial health. This practice ensures that financial statements reflect all obligations, thus giving stakeholders a clear understanding of current financial conditions.