Characteristics of Accrual principle

Characteristics of Accrual principle

In this article we have discussed some important characteristics of accrual principle. Under accrual principle the transaction are recorded in the books of accounts on the bases of their occurrence.

Important Characteristics of Accrual principle

Some important characteristics of accrual principle can be expressed in terms of transaction recording, reflection of Financial position, rational and logical bases of accounting etc. These characteristics have been briefly explained below

1.   Transaction Recording

Under accrual principle transaction are recorded in the book of account on the bases of their occurrence and not on the bases of cash flows (cash receipt or cash payment). This is main characteristics of accrual principle.

2.   Reflect Actual Position

Accrual system reflects actual financial performance and financial position of the entity. This is an important characteristic of accrual principle. Cash based system lacks this characteristic.

3.   Rational & Logical bases

Another important characteristics of Accrual principle is its logical & rational bases of recording the financial transactions in the books of accounts. It is very logically that transaction are recorded, when the benefit has received or given against those transactions.

4.   Receivable & Payable Accounting

In accrual bases of accounting the Receivables and payable accounting works effectively under accrual bases of accounting. In cash based recording, the receivable and payable are not created; rather a memorandum record of progress payment is kept.

5.   Improved Control

Accrual bases of accounting have better control structure than cash bases system and therefore this is the only system recognized by the international accounting standards.

6.   International Recognition

Accrual bases of accounting have international recognition and also recognized as the only bases of accounting by many financial frame works.

7.   List of Characteristics of Accrual principle

Some important characteristic of accrual principle are listed below

a.    Transaction is recorded on bases of occurrence.

b.    Cash payment has no relevance for transaction recording.

c.    It is internationally recognized system.

d.    It has improved control structure.

e.    This system has effective tracking & control over receivable & payable.

In this article we have briefly explained the characteristics of accrual principle.