What Is Accrual Accounting?

Business & Management
#1

One of two accounting approaches is accrual accounting the other is cash accounting. Cash accounting simply records transactions when they are paid, but accrual accounting evaluates a company’s performance and position by recognizing economic events regardless of when cash transactions occur.
Accrual accounting is a form of accounting in which income and costs are recorded at the time of the transaction rather than when payment is received or paid. Revenues and costs should be recognized at the same time, according to the matching principle.
The alternative accounting technique is cash accounting, which only records transactions when money is exchanged.

#2

Accrual concept is concerned with the period to which the revenue and expenses are to be related. In other words, once the revenue realised or expenses is incurred the nest step is to allocate in accounting period and this is achieved with the help of accrual concept which relates to matching of expenses to revenue for a given accounting period. It is to say that matching concept finds its true expression in accrual concept.

The expenses for the current year include the following —

  1. Such revenue expenses which relate to the current year and the payment of which have been made in the current year

  2. Such revenue expenses which relate to the current year and the payment of which have been made in the previous year

  3. Such revenue expenses which relate to the current year and the payment of which although have not been made in the current year but will be made in future