Accrual Concept

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The meaning of accrual is that becomes due especially an amount of money that is yet to be paid or received. It means that revenues are recognized when they become receivable. Accrual concept requires that revenue is recognized when realized and expenses are recognized when they become due and payable without regard to time of cash receipt or cash payment.

Significance of Accrual concept

  • It helps in knowing actual expenses and actual income during a particular period.

  • It helps in calculating net profit of business.

MATCHING CONCEPT

According to matching concept, revenue and expenses incurred to earn revenues must belong to same accounting period. Once revenue is realized, next step is to allocate it to relevant accounting period.

Significance of matching concept

  • It guides how expenses should be matched with revenue for determining exact profit or loss for a particular period.

  • It is very helpful for investors/shareholders to know exact amount of profit or loss of firm.

    Fig.2.0 Accounting Concepts Summary