The document discusses the accrual concept in accounting. The accrual concept means that business transactions are recorded when they occur, not when related payments are made or received. This allows financial statements to reflect the true expenses and revenues for the period being reported. Examples are given of how accrual accounting would be applied, such as expensing rent over the period it is used rather than when payment is made. The significance is that accrual accounting provides a more accurate picture of actual expenses and income for a given time period, which allows for better calculation of net profit.

1. Presentation By :
Muhammad Aamir
Roll no: 03

2. Business transactions are recorded when
they occur and not when the related
payments are received or made.
This concept is called accrual basis of
accounting and it is fundamental to the
usefulness of financial accounting
information.
Definition of Accrual Concept:

3. Examples for the Accrual Concept:
 An airline sells its tickets days or even weeks before the
flight is made, but it does not record the payments as
revenue because the flight, the event on which the revenue is
based has not occurred yet.
 An accounting firm obtained its office on rent and paid
$120,000 on January 1. It does not record the payment as an
expense because the building is not yet used. While
preparing its quarterly report on March 31, the firm
expensed out three months' rent i.e. 30,00 [$120,000/12*3]
because 3 months equivalent of time has expired

4. Examples for the Accrual Concept:
 A business records its utility bills as soon as it receives them
and not when they are paid, because the service has already
been used. The company ignored the date when the payment
will be made.

5. Significant of Accrual Concept:
It helps in knowing actual expenses and
actual income during a particular time
period.
It helps in calculating the net profit of the
business.

6. Thank You