What does accrual accounting recognize?

Accrual accounting recognizes the effects of transactions in the periods they occur, which means that revenues and expenses are recorded when they are earned or incurred, regardless of when cash transactions take place. This method provides a more accurate picture of a company's financial performance and position during a specific period. By recognizing transactions in the period they happen, accrual accounting aligns income and expenses with the economic events that underlie them, allowing for better financial analysis and decision-making.

In contrast to the correct option, the other choices highlight different focuses that do not align with the core principles of accrual accounting. For instance, the timing of cash flows and cash payments are central to cash accounting, not accrual accounting, which improves clarity on the performance of the business during a specified timeframe rather than merely tracking cash movements. Additionally, while net profit may be calculated in both accounting methods, accrual accounting specifically emphasizes the timing of revenue and expense recognition based on when they occur, rather than when cash is exchanged. This foundational aspect of accrual accounting is what ultimately distinguishes it from other accounting methods.