What is the accrual concept, and can you explain it?

Question

Accepted Answer

Accrued concept refers to the recognition of revenue or expenses that have been incurred but not yet received or paid.

Accrued concept is a fundamental accounting principle.
It involves recognizing revenue or expenses in the financial statements before they are actually received or paid.
Accrued revenue refers to revenue that has been earned but not yet received, such as interest income or rent.
Accrued expenses refer to expenses that have been incurred but not yet paid, such as salaries or utilities.
Accrued concept is important for accurate financial reporting and matching of revenue and expenses.
For example, if a company provides services to a customer in December but does not receive payment until January, the revenue should be accrued in December.
Similarly, if a company incurs expenses in December but does not pay them until January, the expenses should be accrued in December.
Accrued concept is also used in adjusting entries at the end of an accounting period.
These entries ensure that revenue and expenses are properly recognized in the correct period.
Accrued concept is different from cash basis accounting, which only recognizes revenue and expenses when cash is received or paid.

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