What is Accrual concept

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Accepted Answer

Accrual concept refers to the recognition of revenue and expenses in the financial statements before the actual cash transaction takes place.

Accrual concept is based on the matching principle, which states that expenses should be recognized in the same period as the revenue they helped generate.
This means that revenue and expenses are recorded in the financial statements when they are earned or incurred, regardless of when the cash is received or paid.
For example, if a company provides services to a customer in December but does not receive payment until January, the revenue for those services would still be recognized in December under the accrual concept.
Similarly, if a company incurs expenses in December but does not pay for them until January, the expenses would still be recognized in December under the accrual concept.
Accrual concept is important for providing a more accurate picture of a company's financial performance and position.
It also helps to ensure that financial statements are consistent and comparable across different periods.

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