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- The effects of transactions and other events are recognised when they occur (and not as cash or its 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.
ILLUSTRATION NO.1
Company A has received cash of $40,000 from his customers. However, the company actually has done all work satisfactorily and the customers have acknowledged the work done which the company can billed for another $20,000. Furthermore, the expenses for the $20,000 work-done has been taken up into the books of account.
Question: Should the company just close their accounting book by presently its income as $40,000 for the cash received or should it be $40,000+$20,000 =$60,000
Answer: Based on this concept, the company has actually completed all work done, also, the work done have being acknowledged by the customers, hence income of $60,000 should be taken up and not just the cash received.
ILLUSTRATION NO.2
Company A has billed customers for $100,000. Total supplier bills paid was $50,000 but there are some suppliers bills not paid amounting to another $15,000
Question: The company's income is undisputed by $100,000 but what should its book show for expenses-is it only $50,000 being invoices paid or is it all inclusive of the other $15,000
Answer: As the total supplier bills should be $50,000+$15,000=$65,000, the company should based on this concept to accrue for the balance of the bills not being paid.
What else can I help you with?
What is an example of an accrual error?
what are examples of accrual errors
What is the accrual concept of accounting?
The accrual concept concerns the matching of costs and revenues for the reporting period.
What is the difference btwn Matching Accrual and realization concept?
Accrual concepts use the matching of expenses to get an overall picture of a person's account. A realization concept is based on the results of the accrual process.
Is the matching and accrual concepts similar?
Matching concept is the basis for accrual accounting system so Yes they are same.
Does the matching concept support accrual accounting principles?
yes
What is associate with the accrual concept of accounting?
Revenue is recognised when earned.
What is associated with accrual concept of accounting?
Revenue is recognised when earned.
Is associated with the accrual concept of accounting?
Revenue is recognised when earned.
Is the matching concept related to the cash basis of accounting or the accrual basis of accounting?
Matching concept is the basis of accrual accounting system under which all expenses to earn revenue should be match within same fiscal year so it is part of accrual accounting system
What is the accrual concept?
The accruals concept of accounting states that transactions are to be recognised when they occur, and reported in the periods to which they relate.
How accrual basis of accounting is related to matching concept?
Accrual basis accounting system is based on the concept of matching principle which dictates that revenues of same fiscal year should be matched with expenses of same fiscal year.
The revenue recognition concept?
The revenue recognition concept is commonly used in accrual form of accounting. This indicates revenue should only be recorded when and entity is completed to a substantial level.
