Question

General accounting practice is based on the accrual concept. Explain what this means and briefly describe how this compares with the financial manager’s focus on cash.

Please don't hand write.

Thank you.

Answer 1

Accrual concept record the revenue and expenses as and when they occur regardless whether the cash has been received or paid for the transaction or not. On the other hand cash method takes into consideration only those transaction of revenue and expenses for which cash has been received or paid.

Example if a sale is made of $1000 in the month of February then even the payment is not been received in the similar month but the sale will be recorded in that particular month only.

Mostly accrual concept method is used by many organisation because it provides an accurate picture of the monthly performances based on the actual sales and expenses made during the month or during the year. Also there is no carry forward of set off of previous month or year in the following month or year.

Also accrual concept method is preferred by generally accepted accounting principles. However some small companies whi do not have qualified staff in order to maintain the accounts can opt for cash method as it is much more easier than accrual method.

But on a broader picture the outsiders as well as the investors are much more happier if the organisation is using accrual method.

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