Which of the following statements describes the accrual accounting system?

The statement that describes the accrual accounting system is that it focuses on the timing of revenue and expenses. Under this system, revenues are recognized when they are earned, and expenses are recognized when they are incurred, regardless of when cash transactions occur. This approach provides a more accurate picture of a company's financial performance over a specific period because it matches income earned with the expenses incurred to generate that income, enhancing the understanding of profit generation and financial position.

In contrast to this, a cash flow system (which is indicated in other choices) only recognizes transactions when cash is exchanged, thereby ignoring the timing of economic events that happen outside of cash movements. Additionally, it is incorrect to say that accrual accounting fails to recognize long-term liabilities or that it calculates net income based solely on cash since accrual accounting includes liabilities and includes accrued revenues and expenses, making it a more comprehensive approach to tracking a company’s financials.