Accrual Accounting: Recording Revenues & Expenses - Essay Sample

Introduction

Accrual method in a method of accounting that is used in recording revenues and all types of expenses when they chip in. This acts in accredited to take place any time regardless of the time of cash exchange.it is also referred to as any entry that is done through a recording of expenses whereby there will be no form of transactions.

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When someone is working as a money dealer by the use of the accrued method, one has to do all the recording to keep in the truck as the money comes in the business and as it leaves. Some cases are the ones where the money is earned but not received ( Marvan & Khvatova, 2019).

The accrual method is always seen as additional work. Still, sincerely speaking, it is the most excellent way rather than the cash transaction way since it provides you with the actual exposure and a clear understanding of your business in terms of the stock and the financial method.

Accruals Are Very Good in the Process of Accounting

To begin with, accumulations help someone or the owner of the account/company possess clear information about the financial status of the company. Accruing helps in keeping the accounts clean and safe, and also secure to understand. This means that things that are happening within a specified year have to be held in that year at the end of that year. This ensures that the picture that is presented by the company is the actual picture. The yearly story of the company can be easily traced at the end of a particular accounting period.

It also states that if a firm has consumed all its expenses, then its part should be appropriately recognized and recorded even if it has not yet paid. In this case, if the recording has not been identified, then entries have to be adjusted,( Amahalu, Abiahu & Chinyere 2017). In accruing expenses, expenses are recorded and sort once they have occurred regardless of the time of payment. If no entries are made in at the end of that period, then entries need to be adjusted. It is believed that to change some entries, expenses are recorded and debited to be able to know the payable utilities since the amount is not paid -yet.

It is also said that in some situations where whereby a particular company can agree with another, in such cases, the agreement should be recorded as an expense though it has not yet been paid. As a rule of the accruing payment, it is stated that a loss is recorded when it is incurred no matter whether it is paid or not,( Kolitz 2016). What needs to be done is since the expense has occurred though not paid should be recorded whereby necessary adjusting should be done. In some situations, there are times when something like loans is taken within at the mid of the year when the end of the year accounting period comes, and it won be recorded. This is because its interest rate is per annum, and it occurred at the mid of the year. Now in such cases, the utility will not be recorded at the end of that year when the accounting will be done in the current year; in such cases, adjusting entries will have to occur.

To make it clear is that if a firm's system of accounting recognizes the expense as it grows, then there will be no need for recording and adjustment ( Tarek & Khvatova 2019). For this reason, then they are ready to be included I the financial statement whereby at the end of the accounting year, then the work of the accountant will be only searching for liabilities that have not been recorded.

In some cases, e.g. in December the financial year after all the liabilities have been recorded, it is known that there are some liabilities the likes of electricity bills and water bill which have not yet been paid and entries have been adjusted before the final financial statement of the fiscal year has to be done, in this case, the entry has been adju7sted since there are no physical expense that has occurred. The fact is that it has grown over time due to accumulation.

Some companies adjust the entries in their accrual expenses by doing the increment of cost in terms of debating and increasing and by crediting the waves /expenses payable,( Hoggett, Medlin, Chalmers, Beattie, Hellmann & Maxfield 2018). ). To make the long story short, and adjusting entries to accrue the expenses is more suitable in cases where there is the `presence of the unrecorded liabilities that are in one way `or the other will apply in a specific accounting period.

References

Kolitz, D. (2016). Financial accounting: a concepts-based introduction. Taylor & Francis.

Amahalu, N., Abiahu, M. F. C., & Chinyere, O. (2017). Comparative analysis of computerized accounting system and manual accounting system of quoted Microfinance Banks (MFBs) in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(2), 30-43.

Hoggett, J., Medlin, J., Chalmers, K., Beattie, C., Hellmann, A., & Maxfield, J. (2018). Accounting. Wiley.

Tarek, M. T., & Khvatova, T. Y. (2019). Investigating the influence of accrued expenses on the earned value analysis of a project, St. Petersburg State Polytechnical University Journal. Economics, 12(2), 103-111.

Marvan, T., & Khvatova, T. J. (2019). Investigating the influence of accrued expenses on the earned value analysis of a project/Analiz vliianiia nacislennyx rasxodov na ocenku effektivnosti proekta v metode osvoennogo obieema. St. Petersburg State Polytechnical University Journal. Economics, 12(2), 103.