Accruals concept

One of the fundamental accounting concepts, the accruals concept is also known as the “matching concept”. Under the accruals concept, revenue and costs are credited or charged to the profit and loss account for the year in which they are earned or incurred, not when any cash is received or paid. For example, if a sale is made on credit this year, but the cash is only received next year, the sale is treated as income in this year. Similarly, if a business incurs a cost during the year (e.g. electricity) but is not invoiced until early in the next year, the accounts will show an estimated liability for the expected amount of the invoice.

 

reference: Business Studies / Accounting. Accounts & Finance Glossary. Jim Riley BA(Hons) MBA FCA // tutor2u

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