ACCRUAL CONCEPT:
If the accounting period is one year for a business, whatever net profit is made during the year, it increases the owner's equity i.e., capital. The net loss made during the year decreases owner's equity, i.e., capital. Excess of revenue income over revenue expenses is net profit, while excess of revenue expenses over revenue income is loss. Following particulars are relevant for this concept:
(i) If any revenue income is received during the current year,but some portion of it belongs to the next year, i.e., this portion has not been earned during the current year then this portion of income should be deducted from income received during the current year.
(ii) If revenue expenses are paid during current year but some portion of these expenses belong to the next year, i.e., this portion has not been due during this year then this portion of expenses should be deducted from the revenue expenses paid during the year.
(iii) All revenue income earned and accrued during current year are recorded without caring whether they are received or not during the current year.
(iv) All revenue expenses becoming due and accrued during the current year, are recorded without caring whether they are paid or not during the current year.
Effects of this Concept:
If the accounting period is one year for a business, whatever net profit is made during the year, it increases the owner's equity i.e., capital. The net loss made during the year decreases owner's equity, i.e., capital. Excess of revenue income over revenue expenses is net profit, while excess of revenue expenses over revenue income is loss. Following particulars are relevant for this concept:
(i) If any revenue income is received during the current year,but some portion of it belongs to the next year, i.e., this portion has not been earned during the current year then this portion of income should be deducted from income received during the current year.
(ii) If revenue expenses are paid during current year but some portion of these expenses belong to the next year, i.e., this portion has not been due during this year then this portion of expenses should be deducted from the revenue expenses paid during the year.
(iii) All revenue income earned and accrued during current year are recorded without caring whether they are received or not during the current year.
(iv) All revenue expenses becoming due and accrued during the current year, are recorded without caring whether they are paid or not during the current year.
Effects of this Concept:
- Cash and Credit both types of transactions are recorded under this concept.
- It helps in finding out the earning capacity of the enterprise during the year.
- It helps in assessing the financial position of an enterprise at the close of the year.
No comments:
Post a Comment