Accrual Principle

Accounting principles

Accrual Principle: It is the theory of recording an accounting transaction in the time period in which they occurred. Not in the previous period or next period. Suppose, you may receive the money in the next period or during the previous period as buying and selling occur a whole year in business. But you have to record the transaction in that period in which your invoiced the customer or you have got an invoice from the supplier. You have to be careful about the dates.

The main reason for doing this is matching the revenue with expenses of that specific period.

For example, You have got a gas bill for the month of June and you have not paid this yet (in the month of July). Say, You are going to pay it in the month of August. Your accounting period is from July to June. You should not recognize this in the month of July or August. It should be recognized in the previous period (in 30'June)

Accrual accounting should apply to revenue, expenses, bad debt, depreciation, Commission and wages.

Know more about Accrual and Cash Basis Accounting Principle and Revenue recognition principle 

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