What basis of accounting specifies that revenues should be recorded when earned, regardless of cash receipt?

The accrual basis of accounting is the framework that dictates that revenues should be recognized when they are earned, regardless of whether cash has been received. This means that transactions are recorded in the financial statements when they occur, reflecting the economic substance of the activities rather than the timing of cash flows.

Under this basis, a company will record revenue at the point when it delivers goods or renders services, which provides a more accurate picture of financial performance during a specific period. This approach aligns with the revenue recognition principle, ensuring that income is matched with the expenses incurred to generate that income, thereby providing a clearer view of a company's profitability.

The cash basis of accounting, on the other hand, recognizes revenues only when cash is received, which can lead to a mismatch between income and expenses within the same accounting period. The deferral basis deals with situations where cash is received or paid in advance of the revenue or expense being recognized, and the revenue basis is not a formally defined method in accounting practice. Therefore, the accrual basis is essential for producing financial statements that accurately reflect the financial health of an organization over time.