Accruals are accounting adjustments made to recognize revenues and expenses that have been incurred but not yet recorded in the financial statements. This method ensures that financial reports reflect the true financial position of a business by matching income earned with the expenses incurred during the same period, following the Generally Accepted Accounting Principles (GAAP). For example, if a company provides services in December but doesn't receive payment until January, the revenue is recorded in December as an accrual. Similarly, if a company incurs an expense in December but pays it in January, the expense is also recorded in December. This practice helps provide a more accurate picture of a company's financial health.