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Hi, I need help with essay on Finance:. Paper must be at least 2500 words. Please, no plagiarized work!principle, the purpose of this concept is to make sure that all revenues and costs are recorded i
Hi, I need help with essay on Finance:. Paper must be at least 2500 words. Please, no plagiarized work!
principle, the purpose of this concept is to make sure that all revenues and costs are recorded in the appropriate statement at appropriate time.” (Duncan Williamson, 17th Jan., 2002)1
As per accrual concept of accountancy, revenues and expenditures are recognized as those are earned or incurred and not when they are received is paid for. An accrued cost is in fact is a sort of estimate of cost that has been incurred and is owed, but that has not yet been recorded in the books of accounts. Similarly, accrued income is an estimate of income that has become due to occurrence of a business transaction but has not yet been recorded in accounting system.
There as per accrual concept any amount that is owed by the business in current accounting period need to be recorded in books of accounts so that it is added to expenses in profit and loss account. Similarly any income that is earned during the current accounting year but not received must be credited to profit and loss account for the year.
Accrual arises on the basis of matching principle where under expenditures and revenues of an accounting period are accounted for whether those have been paid/ received or not during that particular accounting period.
It may also happen that some expenditures relating to future accounting period are paid for in current accounting period or some income for future period are received in the current period. Those advance payments of expenditure and advance receipts of income will not be shown into the profit and loss account of current period but will be treated as current assets and current liabilities in the balance sheet.
“Accountancy is not an exact science. There are certain procedures and principles that are recognized as good practice, but when these limits, there are often various acceptable methods of accountancy for similar items. To make things comparable, the consistency concept just means that you treat similar items in similar way and that the same treatment