Accrual accounting is an accounting strategy that records payments and expenses when they are earned and incurred. This is different from cash accounting where revenue is recognized when it is actually deposited or transferred. 

For example, if a contract states that a vendor will be paid for delivering a product on a particular date, that revenue is “earned” and recorded when the terms are fulfilled. However, it may take up to 90 days for the payment to be deposited in the vendor’s account depending on the contract. This delay is known as days sales outstanding (DSO), and minimizing this metric is a key indicator of a business’s overall financial health.