Which of the following is a fundamental premise of accounting that means that transactions of a business enterprise are recognized during the period to which they relate, not necessarily during the periods in which cash is received or paid?

Question

Omar Holder

Business

12 February, 20:25

Which of the following is a fundamental premise of accounting that means that transactions of a business enterprise are recognized during the period to which they relate, not necessarily during the periods in which cash is received or paid?

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Answers (1)

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Isis House · Answer 1

Accrual basis of accounting

Explanation:

Accrual accounting refers to an accounting assumption or a premise as per which, accounting transactions should be recognized and recorded in the period to which they relate irrespective of the fact whether cash has been received or paid as yet.

Some examples of accrual accounting would be salaries due which relate to a month, for which payments would be made in the next month or in the beginning of new financial period. Similarly prepaid rent.

Accrual basis of accounting lays emphasis on the period of transaction unlike cash basis which is concerned with payment/receipt of cash.