Why should companies use accrual accounting for accounting

Accrual accounting, which appropriately reflects the results of operations in a particular accounting period, distinguishes the records of costs and profits related to economic activities from the actual receipts and expenditures of cash. In accrual accounting, profit is the main milestone. When calculating profits, the results of economic transactions are recorded as expected rather than actual cash receipts and disbursements.

Expected cash receipts from the provision of products or services are recorded as income, and expected cash expenditures related to income are recorded as expenses. Therefore, the vast majority of enterprises keep accounts on this basis.

The accrual basis is based on the two basic premises of going concern and accounting periodization to correctly divide the attribution of accounting elements such as assets, liabilities, income, and expenses in different accounting periods. And use some items such as receivables, payables, provisions, amortization and other items to record the resulting assets and liabilities and other accounting elements. The calculation of profit and loss in each period should reflect all the real operating performance of the current period, and the cash basis obviously cannot fully achieve this.

As a result, accrual accounting can more accurately reflect the actual financial position and operating performance of a given accounting period.

Accrual accounting is a method of determining the income and expenses of the current period based on whether the income and expenses are attributable to the current period.

Accrual accounting, which can properly reflect the operating results of a specific accounting period, distinguishes the cost and profit records related to economic activities, and the actual income and expenditure of cash, and in the accrual accounting, profit is the main phased performance indicator. When calculating profits, the results of economic transactions are recorded as expected, while round potatoes are not actual cash receipts and disbursements.

The vast majority of businesses account for the expected cash receipts of the benders who provide products or services as income, and the expected cash expenditures related to the income are recorded as expenses.

Accounting must adopt the accrual basis of service enterprises, private industrial enterprises, real estate development enterprises, detailed as follows:

1. Introduction to the accrual system:

1. The accrual system is also known as the "receivables and payables". It is a system for dealing with the economic business related to banquets based on whether the expenses and income incurred in the current accounting period should be included in the profit or loss of the current period. Expenses incurred in the current period for which compensation should be received from income for the current period, whether or not monetary funds actually paid or not paid in the current period, shall be treated as expenses for the current period.

2. All income attributable to the current period incurred in the current period, regardless of whether the monetary funds actually received or not received in the current period shall be treated as income in the current period. The implementation of this system is conducive to correctly reflecting the level of expenses and the profit and loss situation of each period.

2. Applicability of accrual system:

1. The accrual system of dust in the right has its rationality in reflecting the business performance of the enterprise, and almost completely replaces the cash system; However, it has its limitations when it comes to reflecting the financial health of a business: a company that appears to be doing well and being efficient on the income statement may not have the corresponding cash on the balance sheet and may be in financial trouble.

2. This is due to the accrual basis of accrual income and expenses reflected in the income statement, while it is partly reflected in cash receipts and expenditures and partly in the balance sheet as claims and debts. To indicate this situation, a cash flow statement or statement of changes in financial position should be prepared on a cash basis. Make up for the shortcomings of accrual accounting.

Accrual accounting is generally used in the context of business operations.

At present, the scope is mainly enterprise accounting and business operations in public institutions.

The accrual accounting principle is a system that deals with relevant economic operations based on whether the expenses and income incurred in the current accounting period should be included in the profit or loss of the current period.

All expenses that should be compensated from the income of the current period for the remainder of the current period, whether or not the monetary funds actually paid or not paid in the current period, shall be treated as expenses for the current period;

All income attributable to the current period incurred in the current period, regardless of whether the monetary funds actually received or not received in the current period, shall be treated as income of the current period.

The implementation of this system is conducive to the positive cracking roll to accurately reflect the cost level and profit and loss situation of each period.

Answers]: a, c

2021 2020 Textbook P94 2019 Textbook P92

Accrual basis of accounting: All the income realized in the current period and the expenses that have been incurred or should be borne in the current period, regardless of whether the money (currency) is received and paid, should be included in the income statement as the current income and expenses. Any income and expenses that do not belong to the current period, that is, the money of the servants has been received and paid in the current period, should not be regarded as income and expenses of the current period.

On the basis of the system of rights and responsibilities. Future economic benefits (assets) and the payment of future economic benefits (liabilities) have nothing to do with whether the money is actually received and paid. And only when the product or service actually occurs is it really recognized as a collection of disorderly lines and expenses.

The accrual accounting model needs to be applied through the matching and implementation principles. Methods such as amortization and deferrals are used to evaluate the causal relationship between outcomes and costs. "Revenue is recognized in a specific period on the basis of the realization principle.

It is then matched to the expenses associated with the closing period and reflects the causal relationship between costs and revenues. ”

The basic assumptions of accounting include accrual accounting.

The accrual assumption means that all the income realized in the current period and the expenses that have been incurred or should be borne should be treated as income and expenses for the current period, regardless of whether the money is received and paid; Income and expenses that do not belong to the current period, even if the money has been received and paid in the current period, should not be treated as income and expenses for the current period.

In the original basic assumptions, accrual production was a measurement principle recognized by accounting, and the revised basic principles incorporated it into the accounting assumptions. There are two main reasons for this:

First, the principles of proportioning, revenue realization and other recognition are all put forward under the premise of accrual accounting, without which many principles in the current theoretical structure of financial accounting cannot be established.

Second, the conceptual framework structures proposed by other countries assume that accrual accounting provides more useful information on the earnings of a business than a statement of financial position based solely on the cash basis. The accrual system is one of the accounting assumptions, which highlights the position of accrual accounting in the conceptual framework of financial accounting, and is judged based on whether the power or responsibility occurs

It is higher than other accounting recognition principles to arrange whether economic operations enter the accounting information system and the position after entering the accounting information system. After the formation of modern enterprises, due to the separation of ownership and management rights, fiduciary responsibility has become a common concern of owners and operators, and has gradually become the goal of financial accounting.

Accrual accounting is derived from such an economic environment. The emergence and development of accrual accounting may be accidental, but it is inevitable that it can always be the basis for financial accounting to be recognized.