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What is meant by the accrual basis of accounting? Discuss.

  1. What is meant by the accrual basis of accounting? Discuss.
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Accrual basis of accounting is method of recording the transaction which provides that revenue and expenses should be recognized and and when incurred as against the cash basis of accounting which record the transaction based on cash inflow and outflow.

Accrual basis of accounting helps us to match the revenue and expenses for the period so that financial statement will relect the relastic view.

Example : Service is rendered in the month of Jan with $1000 and cash is recovered from the client in the month of Feb. In such situation accrual basis allow us to recognize the revenue in the month of Jan which is the month service has been delivered.

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