Can U Describe Accruals Concept Of Accounting?

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Can U Describe Accruals Concept Of Accounting?

2 Answers

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Answer 1

The most fundamental concept in the Statement of Standard Accounting Practice 2 is accrual concept. It is considered very important because Income statement of the company is prepared on the basis of accrual concept. It is significant because it results in the recognition of the revenues and the costs when they are earned and incurred. In other words, the company recognizes the revenues and the costs when the transactions have been made, not when the money is received. It is very essential to match the income and the expenses and helps the company to determine the revenues generated through the expenses.

Answer 2

Accrual concept of accounting is considered very important to make the financial statements of the company especially the income statement. This concept says that the expenses incurred by a company in a specific accounting period should be recognized in the same period regardless of the fact that the expenses were paid in cash or not. Similarly, accrual concept also depicts that the revenues of a company for a specific accounting period should be recognized in the same period irrespective of the fact that the receipts were received or not. For example, a company has material bill of $50,000 per month. But because of the lack of funds the company has not paid the suppliers for two months. The material is bought 10 months only therefore, $50,000× 10 months = $500,000. Although the company has not paid the suppliers still the company will expensed out these costs from the current accounting period. This is the concept of accrual in accounting.