Transactions are recognised when they occur, not when cash changes hands, ensuring they are reported in the relevant accounting period. This method aligns with the matching principle, ensuring expenses are matched with related revenues.

Example: If a marketing agency completes a £5,000 campaign in December but gets paid in January, the revenue is still recorded in December under the accruals basis. Similarly, expenses for December like salaries are recorded in that month, even if they are paid in January.

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