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Accrual Concept Video Lecture | Accountancy Class 11 - Commerce

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FAQs on Accrual Concept Video Lecture - Accountancy Class 11 - Commerce

1. What is the accrual concept in accounting?
Ans. The accrual concept in accounting is a principle that states that financial transactions should be recorded in the accounting books when they occur, rather than when the cash is received or paid. This means that revenues and expenses are recognized in the period in which they are earned or incurred, regardless of when the cash is received or paid.
2. How does the accrual concept affect financial statements?
Ans. The accrual concept has a significant impact on financial statements. It ensures that revenues and expenses are matched to the period in which they are incurred, providing a more accurate representation of a company's financial performance. This allows for better decision-making by users of financial statements, as they can assess the company's profitability and financial health based on the accrual basis of accounting.
3. Can you provide an example of how the accrual concept works?
Ans. Certainly! Let's say a company provides services to a customer in December but doesn't receive payment until January. Under the accrual concept, the revenue from the service would be recognized in December when the service was provided, even though the payment is received in January. This ensures that the revenue is matched with the period in which it was earned.
4. Does the accrual concept apply only to revenue recognition?
Ans. No, the accrual concept applies to both revenue recognition and expense recognition. It requires that expenses be recognized in the period in which they are incurred, regardless of when the cash is paid. This ensures that the expenses are matched with the revenues they help generate, providing a more accurate picture of a company's financial performance.
5. What is the difference between the accrual concept and the cash basis of accounting?
Ans. The accrual concept and the cash basis of accounting differ in terms of when revenues and expenses are recognized. The accrual concept recognizes them when they are earned or incurred, regardless of when the cash is received or paid. On the other hand, the cash basis of accounting recognizes revenues and expenses only when the cash is received or paid. The accrual concept provides a more accurate and comprehensive view of a company's financial performance, while the cash basis is simpler but may not reflect the economic reality of the business.
82 videos|105 docs|42 tests

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