Accounting Concepts Definitions Part : 13 ( Accruals in accounting)

Accounting Concepts Definitions Part : 13

accruals in accounting concepts

Accruals in accounting

Transactions are not always made in cash and the amount is left as due in many a case and if any entity go for a cash basis recording they are most likely to deduct a large portion of its transactions. So, it is always mandatory for the entity and the users alike to get the data in full which means transactions in cash and in accrual should be recorded alike. This method is called the accruals basis.

Accruals basis states:

“When transactions are made they should go into the books of accounts at that instant. So, the transaction that brings change to that accounting periods’ accounts should be recorded even if no cash is seen to be involved with a plain sight.”

Accruals in accounting Example:

XYZ co. has a rent payment of Tk.20,000 of which Tk.1,000 is for the previous year’s accrued amount. The actual rent payment for this period is supposed to be Tk. 40,000.

What should be the rent payment recorded for this accounting period?

Here, see for the change.

The record should reflect the actual balance also getting the effect of any balance related to the previous year or, the next year.

So, the balance will reflect the amount which is related to the present year. So, the amount for this year should be Tk. 40,000.

The rent paid in cash for the current period amounts to Tk. 19,000 and the accrued amount is Tk. 21,000. {40000-(20000-1000)}

One thing should be noticed here that accruals in accounting are recorded as per this periods’ actual expenditure. So, accruals in accounting are helpful to show the actual expense or, revenue for the accounting period which is current.

Here the total amount should be derived in the following manner-

[{40000-(20000-1000)}+(20000-1000)]=40000

So, this gives the idea of the basis. I hope you now understand accruals in accounting, if you want further and broad explanation on this topic then let us know !

 

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