Accrual basis of accounting means that the costs or revenues of events are recognized in the period in which they occur, though the cash flows may take place in another accounting period.
Like for a period of July 05 - October 05, if the organization was due to receive 1000K from an individual X but has not recieved yet for some reason, will recieve in November 05. It would be still be accounted for in the period July 05 - October 05 and not the period starting from November 05.
All the transaction which are outstanding or prepaid recorded in accrual basis like next year income and exp are also recorded if income due but not received till the accounting year close it is recorded.
Posted by: ravi prakash pandey
Accrual can be attribted to both Income and Expense. Accrual are those income or expense which has taken place in one period and the proceeding has not yet happened. The same will be recorded in the period it occurs although it will be realised at a later period. Salary outstanding to employee for expense and income from sale of asset due to receive are the examples of accrual
Posted by: Mumtaz Ali
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accounts on a balance sheet that represent liabilities and non cash based assets are used in accrual based accounting .this accounts includes a/c payables,a/c receivables,goodwill and future tax ,expenses.
Posted by: pratheep
Accrual is dervied from Latin word, where one party of the contract has obliged his/her duty and the other is yet to perform. Ex: A worked for B has agreed and B
is yet settle the payment for B.
Posted by: Don
If legal obligation to pay an expense or receive an income araises the accountant has to journalise those transaction in the relevant accounting period. This is called Accrual Concept.
This is called merchantile system of accounting.
There is no need that all the transactions should involve cash payment or receipt.
This is one of the basic assumption accounting as per Accounting Stadard 1.
Let us take one example:
1. The business has to pay monthly rent @INR.20,000p.a. by 1st of every month
2. The accounting peroid of the business is Financial Year (Starting from 1st april of a year and ends by 31st march of next Year).
3. While going through the ledger the accountant is able to find out that total rent paid for the year is INR 2,00,000.
4. It means the business has to pay further two months rent @40,000/- which is the obligation of the business to pay but not paid
has to be journalised in the books of accounts.
5. The journal to the above transaction is Rent account (expenses increases) Debit and Outstanding Rent account (liability to landlord increases) Credit @INR 40,000/-
Posted by: Lakshmi S N
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Accrual Means in Simple terms - Income or expenditure pertaining to particular should be accounted in the same period whether it may be paid or not received or not.
Eg. Salaries, Rent
Posted by: Surendra reddy
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