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







Related Discussions:- Accrual concept, Assignment Help, Ask Question on Accrual concept, Get Answer, Expert's Help, Accrual concept Discussions

Write discussion on Accrual concept
Your posts are moderated
Related Questions
can a buyer still avail the 2% discount if he/she partially paid the accounts receivable at the 5th day and the full payment is on the 10th day of the given discount period in th

Closing Entries based accounting question a)  Describe the nature of Closing Entries.  I.e. what is the purpose of closing entries?                     b)  For each of the f

Q. What is Marketable securities? Marketable securities are temporary investments such like short-term ownership of stocks and bonds of other companies. Such investments don't

Money payable by customers (individuals or corporations) to the other entity in exchange for goods or services that have been given or used, but not yet paid for. Receivables typic

Tips to be keep in mind while preparing the Financial Statements : 1. Objects given in the trial balance must be revealed only once as it is assumed that they are already adjust

#Q. Example on closing process?

Q. What is Net realizable value? Companies must not carry goods in inventory at more than their net realizable value. Net realizable value is the approximate selling price of a

The analysis focused primarily on the role, structure and funding arrangements for the International Accounting Standards Board (IASB), an entity that has been responsible for majo

What are the implications of applying accounting concepts wrongly?

A store receives $400 cash after offering a chain discount of 10/10/5 on a good. What was the list price? A. $492.20 B. $519.82 C. $533.33 D. $612.00