Accrual Basis
- In order to meet their objectives, financial statements are prepared on the accrual basis of accounting.
- Under this basis, the effects of transactions and other events are recognised when they occur (and not as cash or a cash equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.
- Financial statements prepared on the accrual basis inform users not only of past events involving the payment and receipt of cash but also of obligations to pay cash in the future and of resources that represent cash to be received in the future.
- Hence, they provide the type of information about past transactions and other events that is most useful to users in making economic decisions.
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