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P2 C6 Conventions, Assumption. Concepts and Principles ofAccounting — Account STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceAccountP2 C6 Conventions, Assumption. Concepts and Principles ofAccounting3 Marks
Question
Explain the concept of Accrual with example.
✓

Answer

Concept of Accrual is relevant in the area of revenue & costs. The revenue & costs will be recorded in the period to which they relate. It implies that the revenue should be recognised and recorded in accounting as and when it is earned or it accrues irrespective of the time or period of receipt. Similarly, expenses should be recognised and recorded in accounting as and when it is incurred irrespective of the period of payment there of. Examples: $(1)$ When goods are sold on credit to a customer, the revenue should be recognised inaccounting when such goods are sold even though cash is not yet received for such sale. $(2)$ Even though cash is received, advance received against sale of goods is not recorded as sales until the goods are supplied against the advance. $(3)$ When the work is done more than one year in the agreement of account, income will be calculated in the period to which it relates. $(4)$ For the professional persons like Doctors, $C.A.,$ Advocates, Consultant etc. revenue is considered only when the amount of fees is received by cash/cheque. $(5)$ In case of gold mine, the production of gold is recorded in the register at selling price. $(6)$ Revenue like interest, rent, salary, commission etc. expenses associated with the time are recognized based on time factor.

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