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Income and Expense must be recognized in the period to which they relate instead of in the period in which cash received
Income ,Expenditure should be related to the period
income and expense which r related to the peroid records in that period not when actually recieved or paid.
Transactions are recorded when they occur & not when the related payments are received or made, in other words before we have the original transation we are having some reference in ledger.
Income and Expenditure which are not occurred within period but all are considered for preparing Accounts.
Income should be recorded when accrued/receivable and liability should be recorded when incurred/outstanding.
Theoretically speaking Accruals are items in which a firm realizes its income or expense with happening of an actual transaction. For Example, your salary payable is due on31st Dec and you didn’t pay that on that month. So even though you didn’t pay your staff in the month of Dec (Means the actual transaction is not happening), you have to realize it as expense in your books. So you will debit the Salary Expense in the Month end (31st Dec) by crediting the accrued salary. So that whenever you pay the salary (Actual transaction happens), you may debit the accrued salary & Credit bank.
By doing this, the expense will be booked in the correct period. Practically speaking, whatever goods or service you received for which you didn’t receive the corresponding invoices are accruals (Accrued Expenses). Hope this explanation helped.
Dheeraj Nair
Record on due basis and not on received/paid basis.. in simple terms
Accrual Concept mean what ever the transection belongs to perticular one period (income statement period) to be account for the same period wether there is cash flow or not.
