accrual basis and period reporting Flashcards
Define the accounting concept “Period reporting”
The life of business is broken up into periods of equal length for reporting purposes: for example, to calculate the profit for the year and make decisions using the information.
Businesses have a consistent financial period, (usually the period is a total of one year in duration and it ends every year on 31st march) having a fixed financial period means businesses can compare results from one period to another.
Describe the accounting concept of the “Accrual Basis”
Transactions are recognised when they occur and are reported in the period in which they relate regardless of whether cash has been received or payed.
In order for an entity to accurately prepare its income statement and statement of financial position, it must account for transactions or events that occured during this period but have not yet been recorded - these are called balance-day adjustments.
