Generally, external financial statements are prepared on the accrual basis of accounting, which means that assets and liabilities are recorded when they are committed to, and revenue and expenses are recorded when they are incurred (rather than when they are actually paid). Financial statements re prepared using accrual basis because Accrual basis accounting creates a more accurate view of a company's financial status by recording revenue when it is earned and expenses when they are incurred—effectively matching revenue with expense.