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Accrual Concept

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Accrual Concept – Accrual means recognition of revenue and costs as they are earned or incurred and not as money is received or paid. Expenses accrue when benefit is received and income is accrued when benefit is given.

Accrual Concept in Detailed – Under accrual concept, the effects of transactions and other events are recognised on mercantile basis i.e., when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in the accounting records and reported in the Financial statements of the periods to which they relate. Financial statements prepared on the accrual basis inform users not only of past events involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future.

To understand accrual assumption knowledge of revenues and expenses is required. Revenue is the gross in ow of cash, receivables and other consideration arising in the course of the ordinary activities of an enterprise from sale of goods, from rendering services and from the use by others of enterprise’s resources yeilding interest, royalties and dividends. For example, (1) Mr. X started a cloth merchandising. He invested Rs. 50,000, bought merchandise worth Rs. 50,000. He sold such merchandise for Rs.  60,000. Customers paid him Rs. 50,000 cash and assure him to pay Rs. 10,000 shortly. His revenue is Rs. 60,000. It arose in the ordinary course of cloth business; Mr. X received Rs. 50,000 in cash and Rs. 10,000 by way of receivables

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Article by Raju Choudhary Raju has written 537 articles. If you like This post, you can follow CAknowledge on Twitter. Subscribe to CAknowledge feed via RSS or EMAIL to receive instant updates.