Interested to Buy Any Domain ? << Click Here >> for more details...
Answer Posted / deep sharma
Accrual, in accounting, describes the accounting method
known as accrual basis, whereby revenues and expenses are
recognized when they are accrued, i.e. accumulated (earned
or incurred), regardless when the actual cash is received
or paid out.
E.g. a company delivers a product to a customer who will
pay for it 30 days later in the next fiscal year starting a
week after the delivery. The company recognizes the
proceeds as a revenue in its current income statement still
for the fiscal year of the delivery, even though it will
get paid in cash during the following accounting period.
The proceeds are also a deferred income (asset) on the
balance sheet for the delivery fiscal year, but not for the
next fiscal year when cash is received.
Similarly, a salesperson, who sold the product, earned a
commission at the moment of sale (or delivery). The company
will recognize the commission as an expense in its current
income statement, even though s-/he will actually get paid
at the end of the following week in the next accounting
period. The commission is also a deferred expense
(liability) on the balance sheet for the delivery period,
but not for the next period the commission (cash) is paid
out to her/him.
Unfortunately, the term accrual is also often used as an
abbreviation for the terms accrued expense and accrued
revenue that share the common name word, but they have the
opposite economic / accounting characteristics.
Accrued revenue: Revenue is recognized before cash is
received.
Accrued expense: Expense is recognized before cash is paid
out.
Accrued revenue (or accrued assets) is an asset, such as
unpaid proceeds from a delivery of goods or services, at
which such income item is earned and the related revenue
item is recognized, while cash for them is to be received
in a latter period, when its amount is deducted from
accrued revenues.
In the rental industry, there are specialized revenue
accruals for rental income which crosses month end
boundaries. These are normally utilized by rental companies
who charge in arrears, based on an anniversary of a
contract date. For example a rental contract which began on
15th January, being invoiced on a recurring monthly basis
will not generate its first invoice until 14th February.
Therefore at the end of the January financial period an
accrual must be raised for 16 days worth of the monthly
charge. This may be a simple pro-rata basis (eg 16/31 of
the monthly charge) or may be more complex if only week
days are being charged or a standardized month is being
used (eg 28 days, 30 days etc).
Accrued expense, in contrast, is a liability with an
uncertain timing or amount, but where the uncertainty is
not significant enough to qualify it as a provision. An
example is an unpaid obligation to pay for goods or
services received FROM a counterpart, while cash for them
is to be paid out in a latter accounting period when its
amount is deducted from accrued expenses.
| Is This Answer Correct ? | 7 Yes | 1 No |
Post New Answer View All Answers
what is automatic payment in sap fico
what is an advance against expenses
Expand-----RTD
what is ZBA hold & balance hold in banking?
Tell me about how you have left a position better than you found it
How i pass the share holders capital entry in Tally? How to set this option in Tally?
Short answer on____________Assessment Year
You are given the following information in respect of a company: Fixed cost –Rs.13,000 Variable cost –Rs.14,000 Net profit –Rs.3,000 Net sales-Rs.30,000 Find out: a>BEP b>The profit for sales volume of Rs.50,000 c>The volume of sales to make a profit of Rs.10,000
What will your outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hand to meet its obligations at all times
what is Rectification of Errors ?
Why not we must to created Provision & Reserve? And if we're not to recognized what the effect will be?
What is the accounting treatment for finance lease in lessee's viewpoint?
Can anybody tell me how much salary m show in my resume for expection for the next job m graduate 2year accounts experience?
npa is either person or account
whst is detailed information aboutaccounting standards 20to 29
