What is Accrual Basis of Accounting

This system of Accounting states that we record Business Transactions as soon these are occurred whether the business received Cash or Paid Cash in exchange or not. Accrual Basis of Accounting System is adopted by Manufacturing Companies, where Goods are sold on Credit Basis. Larger Organizations also follows this Accrual Basis System.

This Article Can Also Be Helpful, ”What is Cash Basis of Accounting”

Accrual Basis of Accounting System follows Matching Principle Gaap because we record Business Transactions whether Cash is Received or not whether it is paid or not. So, all the Expenses incurred in earning Revenue must be matched with revenue of that particular Accounting Period. For Example, Salary earned by the Sales Manager, Mr. A but not paid for Rs. 50000 during the month, must be matched with Sales of Current Accounting Period. So, we record following Business Transactions in the Journal of Business:

                                      Mr. A’s Salary a/c    50000

   

                                                                 Outstanding Salary a/c   50000

(Salary Accrued During The Month)

When the business actually paid Cash to Mr. A, then we pass the following Accounting Journal Entry:

                                                              Salary a/c    50000

                                                                           Cash a/c     5000

(Salary Paid To Mr. A For Cash)

So, we can say that Accrual Basis of Accounting System record all the business transactions when these occur whether the amount of Cash is received or paid or not by the business.