Why we do accruals?what happens if we skip accruals?

Question

Accepted Answer

Accruals are necessary for accurate financial reporting and to match expenses with revenues.

Accruals help in recognizing expenses and revenues in the period they occur, rather than when cash is received or paid.
They ensure that financial statements reflect the true financial position and performance of a company.
Skipping accruals can lead to distorted financial statements and misrepresentation of financial results.
Without accruals, expenses and revenues may be recognized in the wrong period, leading to incorrect profitability analysis.
Accruals are particularly important for companies with long-term contracts or projects that span multiple periods.
For example, if a company skips accruals for expenses incurred in one period, those expenses will not be properly matched with the corresponding revenues, resulting in inaccurate profit calculations.

Accepted Answer

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