What distinguishes the accrual method of accounting?

The accrual method of accounting is characterized by the recognition of income and expenses when transactions occur, regardless of when cash is actually received or paid. This approach provides a more accurate representation of a business's financial position, as it aligns income earned with the expenses incurred to generate that income during the same accounting period. For example, if a contractor completes a project in December and invoices the client, the income is recorded in December even if the client pays in January. Similarly, expenses related to that project are recorded when they are incurred, even if the payments for those expenses are made later. This method allows businesses to match revenues with the associated costs and obligations, offering a clearer picture of their operational performance over time.

The other options do not accurately describe the accrual method. Recognizing income only when cash is received and noting expenses only when they are paid pertain to the cash method of accounting. Not requiring any tracking of expenses contradicts the fundamental principles of accounting, where tracking all relevant financial data is essential for accurate financial reporting.