What accounting principle requires expenses to be recorded when incurred, not when paid?

What accounting principle requires expenses to be recorded when incurred, not when paid? The accrual principle requires expenses to be recorded when incurred, not when paid.

Under accrual accounting, a business recognizes an expense when it receives the related goods or services, even if payment occurs later. For example, work completed in December but paid for in January is generally recorded as a December expense. The unpaid amount is recorded as a liability, such as an accrued expense or accounts payable.

This approach gives financial statements a more accurate picture of activity during each reporting period. It contrasts with cash-basis accounting, which records expenses when cash leaves the business and revenues when cash is received.

The matching principle is closely related but narrower. It calls for costs to be reported in the same period as the revenues they help generate. The accrual principle addresses timing based on earning or incurring an item, while matching helps determine the appropriate period for related costs.