What type of accounting method records revenues and expenses when they are incurred?

The accrual accounting method is characterized by the recording of revenues and expenses at the time they are incurred, regardless of when the cash is actually exchanged. This approach adheres to the matching principle, which states that expenses should be recognized in the same period as the revenues they help to generate. This allows for a more accurate reflection of a company's financial position and performance over time, since it includes all relevant financial activities within the period they occur, rather than solely those that involve cash transactions.

Other accounting methods, such as cash basis accounting, only recognize revenues and expenses when cash is received or paid, which may not provide a complete picture of financial activities. Tax accounting focuses specifically on matters related to tax regulations and compliance, and pro forma accounting involves projected financial statements used for planning purposes, neither of which aligns with the timing of revenue and expense recognition as defined in the accrual method.