accruals concept


accruals concept
One of the four fundamental accounting concepts laid down in Statement of Standard Accounting Practice (SSAP) 2, Disclosure of Accounting Policies; it is also recognized in the Companies Act (1985) and the EU's Fourth Directive. It requires that revenue and costs are recognized as they are earned or incurred, not as money is received or paid. Income and expenses should be matched with one another, as far as their relationship can be established or justifiably assumed, and dealt with in the profit and loss account of the period to which they relate (see matching concept). Accruals and prepayments are examples of the application of the accruals concept in practice. For example, if a rates bill for both a current and future period is paid, that part relating to the future period is carried forward as a current asset (a prepayment) until it can be matched to the future periods. The importance of the accruals concept was reaffirmed in Financial Reporting Standard 18, which has now superseded SSAP 2.

Accounting dictionary. 2014.

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  • Fourth Directive — An EU directive (1978) concerning the harmonization of company law and accounting practices in member states. It recognized five accounting concepts as fundamental: the accounting entity concept, the accruals concept, the consistency concept, the …   Accounting dictionary

  • Fourth Accounting Directive — An EU directive (1978) concerning the harmonization of company law and accounting practices in member states. It recognized five accounting concepts as fundamental: the accounting entity concept, the accruals concept, the consistency concept, the …   Big dictionary of business and management