Question

Explain Accrual basis of accounting and Full disclosure principle of

Accounting
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Answer 1

Answer:

The accrual principle is an accounting concept that requires transactions to be recorded in the time period in which they occur, regardless of when the actual cash flows for the transaction are received. The idea behind the accrual principle is that financial events are properly recognized by matching revenues.

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Answer 2

ANSWER :

❖ Accrual Basis of Accounting :-

• ➺ Accrual Basis of Accounting is a basis of accounting under which incomes are recorded or credited to the period in which they are earned irrespective of whether the same has been actually been received or not as well as expenses are charged to the period in which they related, irrespective of the fact that they have actually been paid or not.

• ➺ Accrual Basis of Accounting is a method of accounting which takes into account all transaction taking place during a particular accounting period irrespective of whether the same has actually been received/paid or not. It takes into account the revenues and expenses as and when they are earned or incurred not as cash received or paid respectively.

• ➺ Accrual Basis of Accounting recognises revenue as being and at the point of sale or with the performance of a service. Under this method, net income of an accounting period is the difference between the revenue earned and expenses incurred for earning that revenue during a particular period. Hence, as per this system, the monetary effect of a transaction is taken into account in the period in which they are earned or incurred rather than in the period in which cash is actually received or paid by an enterprise.

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❖ Full Disclosure Principle :-

• ➺ Full Disclosure Principle specifies that there should be complete and understandable reporting relating to the economic affairs of the entity. According to this concept, it is obligatory for die accountant to report full facts in the financial statement

• ➺ Accounting information is required for decision making propose by various users and therefore in order to be useful as basis of the decision-making process, there should be full disclosure of all significant information in the financial statements. Hence, Full Disclosure Princple ensure that financial statements contained full and fair information of the enterprise for decision-making purpose of the different classes of users.

• ➺ Significant accounting policies followed while preparing and presenting financial statements must be disclosed as per Accounting Standard 1 which deals with disclosure of Accounting Policies.