Accrual basis accounting treats income when earned and expenses when incurred, unlike cash basis, affecting tax timing. Accrual basis is an accounting method that recognizes income when earned and expenses when incurred regardless of receipt or payment; in contrast, cash basis records transactions upon receipt or payment. For tax purposes, accrual accounting permits deductions for unpaid expenses and taxes income before receipt, though unearned income like prepaid interest and rent is generally taxed in the year it is received.