2.1: Accrual Basis of Accounting
The accrual basis of accounting recognizes economic events when they take place, regardless of when the related cash transactions occur. Revenue is reported in the period in which you earn it, regardless of whether you received the cash for these services yet. Similarly, expenses are reported in the period in which you incur them to produce revenues, whether or not you have paid for these costs yet.
I hire you to mow my yard this afternoon and agree to pay you $50. I am not at home when you finish the job, so you leave me a bill in the mailbox. You have EARNED $50 today, even though you have not received the cash payment yet, because you completed the work.