Question

What is the accrual basis of accounting? When should revenue and expense be recognized in the accrual basis? Provide an example.

PLEASE IN YOUR OWN WORDS.

thx.

Answer 1

What is the accrual basis of accounting?

Accrual basis of accounting refers to an accounting method that recognizes economic events regardless of when cash transactions occur.

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

In Accrual Accounting a revenue is recognized when it is earned and not when cash is received against that revenue. For example sale opf goods on credit is the trigger point to record sales and not when cash is received from customer. Revenue is recognized when revenue is earned or when revenue is recognizable (to be collected in future in cash or kind).

In accrual accounting expense is recognized when in the period in which revenue related to that expense is recognized. Expenses are recognized when they have occurred and not when cash is paid for that expense. For example electricity bill paid in the month of December paid in January will be recognized as expense in December.