Under this method of accounting, income is recognized when earned, whether or not collected, and expenses are recognized when events have occurred that determine that a liability exists and the amount of the liability can be ascertained with reasonable accuracy For example, at December 31 you ship a customer 100 widgets You have to record the income in that year, even though you won't get paid until the following year If you were buying the widgets, you could accrue the expense in the tax year you ordered them There are some special rules for tax purposes and there can be a significant divergence between recognition of income and expenses for tax and financial accounting purposes