Q 17: According to accrual concept of accounting, financial or business transaction is
recorded :
1. O
When cash is received or paid
2. O
When transaction occurs
3. O
When profit is computed
4.
When Balance Sheet is prepared
Answers
Answer:
Answer is When transaction occurs
Answer: When the transaction occurs.
The accrual concept of accounting is one of the fundamental principles of accounting that guides the recording of financial transactions. According to this concept, transactions are recorded in the financial statements not when cash is received or paid, but when the transaction actually occurs.
Step-by-Step Explanation:
Identification of Transaction: The first step is to identify the transaction that has taken place. For example, a company has received an order for goods or services.
Recognition of Revenue: Once the transaction has taken place, the revenue is recognized in the financial statements. In the example, the company would recognize the revenue from the sale of goods or services, even if it has not yet received the payment.
Recording the Transaction: The next step is to record the transaction in the financial statements. This is done by making a journal entry in the general ledger. The entry would be a debit to the accounts receivable account and a credit to the sales account.
Adjustment for Accruals: Finally, the company needs to make any necessary adjustments for accruals. For example, if the company has received an order for goods or services, but has not yet invoiced the customer, it would need to accrue the revenue in its financial statements. This would be recorded as an adjusting journal entry in the general ledger.
In conclusion, according to the accrual concept of accounting, transactions are recorded in the financial statements when they occur, regardless of when cash is received or paid. This provides a more accurate representation of the company's financial health, as it records all transactions that have taken place, not just those that have affected its cash balance.
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