Forums Accounting What is the accrual method?

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    kritinidhi
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    What is the accrual method?

    #16487

    kritinidhi
    Member

    Accountancy methods refers to the basic rules and guidelines under which a business keep their financial records and prepare their financial reports. There are two types of accounting methods used for book keeping: the cash basis and the accrual basis.

    Accrual method of accounting is the standard approach to recording transactions for all larger businesses. Well, the question arises that what accrual method is?

    Accrual means accumulation of something, in accounting, it has mean different meaning where it refers to accounts on a balance sheet that represents liabilities. Hence, accrual basis of accounting is the concept of recording revenues when earned and expenses as incurred. This method of recording business transaction is totally different from cash basis of accounting, under which revenues are recorded when cash is received, and expenses are recorded when cash is paid. While, under accrual basis of accounting, expenses are matched with revenues on the income statements when the expenses expire, or tittle has transferred to the buyer, rather than at the time when expenses are paid. The need for this method arose out of the increasing complexity of business transactions and a desire for more accurate financial information. This method provides a more accurate picture of the company’s current financial conditions.

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