In what context is the term 'accrual accounting' primarily used?

Accrual accounting is primarily used to recognize revenue earned and expenses incurred, regardless of when cash transactions occur. This method provides a more accurate picture of a company's financial health, as it matches income earned with the expenses related to that income within the same accounting period. This alignment allows businesses to report a true reflection of their financial performance, providing stakeholders with relevant information for decision-making.

In contrast, other contexts such as detailing cash flow focus only on actual cash transactions without considering income that has been earned or expenses that have been incurred but not yet settled. Similarly, processing tax returns may utilize cash basis accounting or accrual accounting depending on the requirements of the tax regulations but does not strictly define the concept of accrual accounting itself. Preparing budgets often involves projected cash flows and expenses, which can be separate from the principles of accrual accounting, although the latter might inform budget forecasts. Hence, the primary focus of accrual accounting is on recognizing revenue and expenses in the appropriate periods they occur, leading to a more comprehensive understanding of an entity's financial activities.