GAAP guidelines require businesses to prepare financial statements according to the matching principle using the accrual basis of accounting. Because the objective is to ensure that expenses match with revenues, expenses are reported in the period in which the expense is incurred regardless of when the expense is paid.

For example, employee wages are reported as wage expense in the week an employee works, even if the employee won’t receive the money until later in the month. In the same way, revenue is recognized and reported in financial statements at the time a sale is made, regardless of when the business actually receives payment.