Which accounting basis records revenue and expenses when the transaction occurs, adhering to the matching principle?

The basis that records revenue and expenses when the transaction occurs, while adhering to the matching principle, is accrual basis accounting. This approach recognizes revenues when they are earned, regardless of when the cash is received, and records expenses when they are incurred, regardless of when the cash is paid.

The matching principle is a cornerstone of accrual accounting, which ensures that expenses are matched with the revenues they help to generate in the same accounting period. This allows for a more accurate representation of a company's financial performance, reflecting the true economic activity during a given period.

In contrast, cash accounting records revenues only when cash is received and expenses only when cash is paid, which does not align with the timing of the economic events. The direct and indirect cash flow methods pertain to reporting cash flows rather than the recognition of revenues and expenses as per the accrual system. Thus, accrual basis accounting not only meets the requirement to record transactions upon occurrence but also provides a more comprehensive view of a company's financial activities.