What is an outcome of using accrual basis accounting?

Using accrual basis accounting leads to a more accurate reflection of a company's financial performance because this method recognizes revenues and expenses when they are incurred, not when cash is exchanged. This approach allows businesses to record all earnings from sales and expenses related to those sales, regardless of when cash transactions occur. As a result, it provides a clearer picture of a company's financial position and operational results over a specific period.

By recognizing income when it is earned and expenses when they are incurred, accrual accounting helps in matching revenues to the expenses that generated them, thus aligning financial performance with economic activity. This is particularly critical for companies that extend credit or have long-term projects, enabling stakeholders to make better-informed decisions based on complete financial information.

In contrast, methods that emphasize cash transactions may overlook significant financial events, resulting in a less accurate representation of a company's health.