Accrual accounting method is a method of managing an enterprise's accounting method in which transactions are recorded at that time, even if no assets have been exchanged between the legal entities involved in the transaction, ie the goods sold or the services provided have not yet been disclosed received by the seller and the buyer has not yet done enough. This method is based on the accounting principle of the principle, which is called the accounting principle, that is, when the revenue is to be compared with the expenditure incurred in obtaining such revenue.
How is accrual accounting method used?
The basis for the success of a clearing process means that as soon as a document, such as a billing statement or a receipt that supports the assumption that a debit or credit transaction, the accountant introduces the appropriate accounts to represent the transaction. For example, a bookkeeper can not wait until cash is collected to sell the sale as a loan in the accounts but is fixed at the conclusion of the contract to support the title for future cash. Of course, if a transaction involving a cash or other asset, such as a retail store, takes place at the beginning of the transaction, then the transaction is recorded regardless of the accounting method.
The Benefits of Accrual Accounting Techniques
With accrual accounting, accounting for liabilities when they are the legal basis for them, it is less likely that an enterprise fails to hedge liabilities by accounting for an accounting error. Furthermore, since accrual accounting means that assets, liabilities and revenues are recorded in chronological order, accrual accounting allows them to evaluate transactions easily and efficiently. In addition, the method of accrual accounting provides a more accurate financial situation for the business. However, the accrual-based method requires that multiple entries be entered into the accounts and as transactions are recorded regardless of whether or not they receive cash for the goods sold or services provided in the event that customers do not pay its debts are recognized as losses. This is a good practice as the financial statements indicate the quality of the receivables and the losses from the sale to non-paying customers.
We can conclude that this accounting method is a more widely used and recommended accounting method.
Example of Accrual Accounting
On 2 May 2009, ABC Corporation signed an agreement with XYZ to sell 1,000 chairs. The chairs will be delivered to the XYZ company's warehouse on 3 May 2009 and the ownership of the chairs will be transferred to the company by the delivery date. Chairs are paid within 30 days of delivery. Using the result-accounting method, the ABC company records the transaction on May 3, 2009, when the chairs are delivered to the customer, ie they record sales revenues and receivables from the XYZ company, reduce the value of the inventory from the inventory's inventory and reflect the as the costs associated with the sales revenue of the chairs and the payment of the goods are later executed.
Using the same accounting method, XYZ records the purchase of chairs in its books, ie increases inventory value and accounting obligation (payable accounts) to ABC.
Both companies must therefore record this transaction on the day that the ownership of the goods was transferred from the seller to the buyer despite the actual payment date.
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