Describe the accrual basis of accounting

Answer 1

The accrual basis of accounting typically recognizes revenue when a firm sells goods (manufacturing and retailing firms) or renders services (service firms), and recognizes expenses in the period when the firm recognizes the revenues that the costs helped produce. Thus accrual accounting attempts to match expenses with associated revenues. When the usage of an asset's future benefits does not match with particular revenues, the firm recognizes those costs as expenses of the period during which the firm uses the benefits provided by the assets.

The accrual basis of accounting illustrates the matching convention: it matches expenses with their related revenues by subtracting their amount in measuring performance. Accrual accounting and matching separate performance measurement from cash receipts and disbursements. The accrual basis focuses on inflows of net assets from operations (revenues) and the use of net assets in operations (expenses), independent of whether the firm has collected cash for those inflows and spent cash for the outflows of net assets.