Accrual concept

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Accrual concept

  1. 1. Presentation By : Muhammad Aamir Roll no: 03
  2. 2. Business transactions are recorded when they occur and not when the related payments are received or made. This concept is called accrual basis of accounting and it is fundamental to the usefulness of financial accounting information. Definition of Accrual Concept:
  3. 3. Examples for the Accrual Concept:  An airline sells its tickets days or even weeks before the flight is made, but it does not record the payments as revenue because the flight, the event on which the revenue is based has not occurred yet.  An accounting firm obtained its office on rent and paid $120,000 on January 1. It does not record the payment as an expense because the building is not yet used. While preparing its quarterly report on March 31, the firm expensed out three months' rent i.e. 30,00 [$120,000/12*3] because 3 months equivalent of time has expired
  4. 4. Examples for the Accrual Concept:  A business records its utility bills as soon as it receives them and not when they are paid, because the service has already been used. The company ignored the date when the payment will be made.
  5. 5. Significant of Accrual Concept: It helps in knowing actual expenses and actual income during a particular time period. It helps in calculating the net profit of the business.
  6. 6. Thank You

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