Accruals are accounting adjustments that recognize revenues and expenses when they are earned or incurred, rather than when cash is exchanged. This method helps provide a more accurate picture of a company's financial position by matching income and expenses to the period in which they occur, in line with the matching principle. For example, if a company provides a service in December but receives payment in 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 approach is essential for businesses following Generally Accepted Accounting Principles (GAAP).