1. To match revenue and expenses: Accrual accounting matches revenues and expenses in the period in which they are earned and incurred, respectively, regardless of when cash is received or paid. This provides a more accurate picture of a company's financial performance than the cash basis of accounting, which only records revenues and expenses when cash is received or paid.
2. To provide a more accurate picture of a company's financial position: Accrual accounting provides a more accurate picture of a company's financial position by including all assets, liabilities, revenues, and expenses, regardless of when cash is received or paid. This information is essential for investors, creditors, and other users of financial statements to assess a company's financial health.
3. To comply with generally accepted accounting principles (GAAP): Accrual accounting is required by GAAP, which are the rules and standards that govern financial reporting in the United States. GAAP is designed to ensure that financial statements are accurate, consistent, and transparent, and accrual accounting is essential for achieving these goals.
4. To comply with tax regulations: Accrual accounting is also required for tax purposes in many countries. Tax regulations require that businesses report their revenues and expenses in the period in which they are earned and incurred, respectively, and accrual accounting is the only method of accounting that can accurately do this.