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KembaraXtra- Financial Terms- accruals concept is one of the fundamental accounting concepts used in financial reporting. It requires revenue and expenses to be recognized when they are earned or incurred, not when cash is received or paid.
The concept was originally established in Statement of Standard Accounting Practice (SSAP) 2 and is also recognized in the Companies Act and the EU Fourth Accounting Directive.
Under the accruals concept, income and expenses should be matched to the accounting period to which they relate. This provides a more accurate picture of financial performance.
Accruals and prepayments are practical applications of this principle. For example, if a payment covers both the current and future accounting periods, the future portion is carried forward as a prepayment.
The importance of the accruals concept was reaffirmed in Financial Reporting Standard 18 and International Accounting Standard 18, which emphasized its role in reliable financial reporting.
The concept was originally established in Statement of Standard Accounting Practice (SSAP) 2 and is also recognized in the Companies Act and the EU Fourth Accounting Directive.
Under the accruals concept, income and expenses should be matched to the accounting period to which they relate. This provides a more accurate picture of financial performance.
Accruals and prepayments are practical applications of this principle. For example, if a payment covers both the current and future accounting periods, the future portion is carried forward as a prepayment.
The importance of the accruals concept was reaffirmed in Financial Reporting Standard 18 and International Accounting Standard 18, which emphasized its role in reliable financial reporting.
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