Accrual concept, Accounting Basics

Accrual Concept

The accrual concept makes a distinction among the receipt of cash, and the right to obtain it, and the payment of cash and the legal obligation for pay it. In fact, business operations, the obligation to pay and the real movement of cash may not match. The accrual concept recognizes such distinction. In connection along with the sale of goods, revenue may be acquired:

 before the right to get arises, or

 After the right to receive has been made. The accrual concept provides a guideline to the accountant as to how she or he should reacts the cash receipt and the rights related thereto.

In the former conditions the receipt will not be recognized as the profits of the period for the purpose that the right to receive the same has not yet arisen. In the latter case the 10-revenue will be recognized even if the amount is received in the following period.

As the same treatment would be specified to expenses incurred through the firm. Cash payments for expenses may be created before or after they are unpaid for payment. Only those sums that are due and payable would be acted as expenses. If a payment is made in advance that is: it does not belong to the accounting period in question, this will not be reacted as an expense, and the person who received the cash will be reacted as a debtor till his right to receive the cash has matured. Where an expense has been incurred throughout the accounting period, but no payment has been created, the expense should be recorded and the person to whom the payment must have been made is demonstrated as a creditor

Posted Date: 4/3/2013 5:54:05 AM | Location : United States

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