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Introduction To Accounting: Part 11: Accrual Concept

Nishant Kumar
28/06/2017 0 0
  1. According to the Accrual Assumption, a transaction is recorded in the books of account at the time when it is entered into and not when the settlement takes place.

  2. For Example, if goods are sold in the current accounting period (i.e., in the current year), but the payment is to be received after the current accounting period, even then, that sale is recorded in the books of accounts of the current accounting period. Similarly, if purchases are made in the current accounting period, but the payment towards them is to be made in the next accounting period, those purchases should be recorded in the current accounting period itself.

The three Concepts, i.e. Going Concern, Consistency and Accrual are considered as the basic assumptions of Accounting, i.e. it is assumed that any enterprise will definitely follow these three principles while preparing their Books of Accounts.

After preparing the Financial Statements, an annexure called the “Notes to Accounts” is also prepared. In this annexure, any significant information relating to the Financial Statements or any additional information is disclosed for the users of Financial Statements. For example, as discussed above in consistency concept, sometimes, there exist multiple rules relating to a particular type of transaction. Hence, it becomes important to mention in the “Notes to Accounts” the rule or the method used for recording that particular type of transaction.

If any enterprise decides not to follow either of the above three basic assumptions, i.e. Going Concern, Consistency, and Accrual, only then it will have to disclose such fact along with the reasons for deviation.

 

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