In which accounting method is revenue recognized prior to cash receipt?

In accrual accounting, revenue is recognized when it is earned, rather than when cash is received. This method aligns with the revenue recognition principle, which states that revenue should be recognized when goods or services are delivered, regardless of when the payment is collected.

Using accrual accounting allows businesses to better match revenue with the expenses incurred in generating that revenue, providing a more accurate picture of financial performance during a specific accounting period. This is particularly important for businesses that operate on credit or have payment terms that differ from the timing of service delivery.

In contrast, cash accounting only recognizes revenue when cash is actually received, which can lead to discrepancies between actual performance and reported performance. Other methods, such as deferral accounting, deal with the timing of expense recognition rather than revenue. Hybrid accounting combines elements of both cash and accrual methods but does not fundamentally recognize revenue prior to cash receipt in the same way as accrual accounting does.