Nevada Community Manager Practice Exam

In accrual accounting, income is recognized when it is earned, regardless of when payment is actually received. This means that if a service is provided or a product is delivered, the income is recorded at that point, reflecting the activity's occurrence. Similarly, expenses are recorded when they are incurred, meaning that the obligation to pay for goods or services consumes resources during the period. This approach provides a more accurate representation of a company's financial situation, as it aligns revenue with the expenses associated with earning that revenue within the same accounting period. This principle ensures that financial statements reflect true performance and financial position, which is essential for stakeholders analyzing a company’s financial health.