Accrual Principle of Accounting – Accounting Homework Help

The accrual principle of accounting denotes that revenues should be kept in the accounts as soon as they are accumulated or realized instead while actual cash is realized. Thus if, for example, Christopher NATO limited makes a credit sale of $ 100000 in the month January. The financial year ends on March 31st , March 2012. The cash of this credit sale is similarly to be received in June 2012. After that as per to accrual principle of accounting the sale should be recorded like an accrued revenue asset in the balance sheet of financial year 2011-12 though if the actual cash for this sale will be received in financial year 2012-13 (Nitzan, Jonathan; Bichler, Shimshon ,2009).

Revenue recognition principle is an extremely important one in accounting. Revenue is said to be recognized once the invoice of the sale is accepted by the customer. The customer may select to pay instantly on receiving the invoice of sale or it may select at a latter point of time. In few cases he may even pay in advance that is before the actual sale has taken place. In these cases the revenue will be identified as deferred revenue. Deferred revenue is a liability for the business.

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