Question

When should revenue and expense be recognized in the accrual basis? Provide an example

Answer 1

There are 2 methods with which we can do accounting, one is cash basis and anoother is accrual basis, as per accrual basis of accounting, expenses and income should be accrued and recognized in the period in which they are incurred, not in the period in which they are paid. General and mostly big business use accrual basis of accounting as it leads to actual performance of the business and it also follows the matching principle of the accounting as in incomes are matched which the expenses which has been incurred to earn it. Accrual Accounting is used when the company want to recognize the income and expenses in the period which they are related, so that better presentation of financial position is possible. It helps to account liabilities and assets better as compared to cash basis. When ever the corporations need to follow matching principles of accounting, they have to follow accrual basis. of accounting.