Which accounting method records revenues when they are incurred?

The correct response is based on the principles of accrual accounting, which is a fundamental method used in financial accounting. Under this method, revenue is recognized when it is earned, regardless of when the payment is actually received. This means that if a service is provided or a product is delivered, the revenue is recorded at that time, which may occur before the cash is exchanged.

Accrual accounting provides a more accurate representation of a company's financial position because it matches income with the related expenses in the same period. This alignment helps in understanding the actual performance and profitability of a business, as it reflects all earned revenues and incurred expenses.

In contrast, other methods mentioned do not recognize revenue in this manner. For instance, cash basis accounting only records revenues when cash is received, which can distort the true financial situation if sales are made on credit. Expense accounting focuses primarily on tracking expenses and does not directly address revenue recognition. Direct accounting is not a recognized term in accounting practices and does not relate to the timing of revenue recognition.