CAT / FIA FFA Syllabus D. Recording Transactions And Events - Matching concept - Notes ^{1 / 5}

The accruals concept is one of the underlying assumptions in the “Framework for the Preparation and Presentation of Financial Statements”

It is also known as the matching concept

The basic idea is that items are recognised in the period in which they are earned, not necessarily when they are received / paid in cash.

So a sale made to a customer on credit just before the year-end would be included in that year's statement of profit or loss, even though the cash may not be received until the following year.

For example,

An entity has a year of end 31/12/20X4

It pays an electricity bill of $12,000 for the 12 months to 30/9/20X4, and 
$14,000 for the 12 months to 30/9/20X5

The year to 31 December 20X4 includes 9 months of the electricity for the year to 30 September 20X4 and 3 months of the electricity for the year to 30 September 20X5, that is:
(9/12 × $12,000) + (3/12 × $14,000) = $12,500