What is accrual? Principle and criteria in accounting
Posted: Tue Dec 17, 2024 6:49 am
The accrual principle is one of the fundamental pillars of accounting and its correct application is essential for the accounts to accurately reflect the financial reality of the company.
We explain what the accrual principle is, its advantages and disadvantages, and how it differs from the invoice issue date.
We also explore the cash basis as an alternative, so you can understand which one is best suited for your business.
The first part of the General cabo verde email list Accounting Plan includes the accounting principles . Their application must lead to the annual accounts showing a true image of the assets, financial situation and results of the company.
Among the accounting principles is the accrual principle , a fundamental concept in accounting that refers to the accounting recognition of income and expenses at the time they occur , regardless of the cash flow of income or payments from these transactions.
The accrual principle is one of the main accounting principles that specifies that the effects of transactions or economic events will be recorded when they occur .
This accounting principle is crucial to properly reflecting the financial reality of a company, as it allows financial statements to reflect economic transactions and events in the accounting period in which they occur , rather than being based on cash flow .
Use Sage Active to more easily comply with your tax obligations and correctly account for invoices by their accrual date!
What is the accrual date of an invoice and how is it different from the issue date?
The accrual date corresponds to the moment in which the transaction is carried out, and is the date that must be considered for tax purposes. It does not always coincide with the date of issue of the invoice, although it usually does.
To explain it in a practical way, let's look at an example:
A company makes a large sale and makes the goods available to its customer a few days before the end of the year. However, instead of issuing the invoice with the delivery date, it decides to set the date for the following year.
In the VAT settlement for the last period of the financial year, the VAT incurred on that transaction will be deducted, but the VAT charged on the sale will be postponed until the first settlement of the following financial year. In addition, this will also reduce the turnover and therefore the taxable base for corporate tax.
This practice may be pursued by the Treasury for violating the accrual principle , since said operation should have been included for tax purposes before the end of the year and, consequently, its accrual period .
Therefore, you must be clear that the accrual date of an operation is what determines in which VAT quarter that operation must be declared and in which fiscal year said income must be imputed . All company operations must be imputed in their accrual period.
The accrual date is what determines whether an invoice is included in a tax return and not the issue date.
Problems with the accrual principle
Applying the accrual principle, companies and self-employed persons must invoice their sales and expenses in the year in which they occur, even if they are collected or paid in the following year. If this were not the case, the true image of the company would be distorted and it would also have tax consequences.
In the case of rebates, this principle must also be applied, since their high amount, in certain cases, can substantially modify the company's results. Many of these can be invoiced by suppliers at the beginning of the year following the period to which the rebate corresponds. In this case, the company must apply the accrual principle and impute them to the year to which the rebate corresponds, making the corresponding accounting adjustment.
We explain what the accrual principle is, its advantages and disadvantages, and how it differs from the invoice issue date.
We also explore the cash basis as an alternative, so you can understand which one is best suited for your business.
The first part of the General cabo verde email list Accounting Plan includes the accounting principles . Their application must lead to the annual accounts showing a true image of the assets, financial situation and results of the company.
Among the accounting principles is the accrual principle , a fundamental concept in accounting that refers to the accounting recognition of income and expenses at the time they occur , regardless of the cash flow of income or payments from these transactions.
The accrual principle is one of the main accounting principles that specifies that the effects of transactions or economic events will be recorded when they occur .
This accounting principle is crucial to properly reflecting the financial reality of a company, as it allows financial statements to reflect economic transactions and events in the accounting period in which they occur , rather than being based on cash flow .
Use Sage Active to more easily comply with your tax obligations and correctly account for invoices by their accrual date!
What is the accrual date of an invoice and how is it different from the issue date?
The accrual date corresponds to the moment in which the transaction is carried out, and is the date that must be considered for tax purposes. It does not always coincide with the date of issue of the invoice, although it usually does.
To explain it in a practical way, let's look at an example:
A company makes a large sale and makes the goods available to its customer a few days before the end of the year. However, instead of issuing the invoice with the delivery date, it decides to set the date for the following year.
In the VAT settlement for the last period of the financial year, the VAT incurred on that transaction will be deducted, but the VAT charged on the sale will be postponed until the first settlement of the following financial year. In addition, this will also reduce the turnover and therefore the taxable base for corporate tax.
This practice may be pursued by the Treasury for violating the accrual principle , since said operation should have been included for tax purposes before the end of the year and, consequently, its accrual period .
Therefore, you must be clear that the accrual date of an operation is what determines in which VAT quarter that operation must be declared and in which fiscal year said income must be imputed . All company operations must be imputed in their accrual period.
The accrual date is what determines whether an invoice is included in a tax return and not the issue date.
Problems with the accrual principle
Applying the accrual principle, companies and self-employed persons must invoice their sales and expenses in the year in which they occur, even if they are collected or paid in the following year. If this were not the case, the true image of the company would be distorted and it would also have tax consequences.
In the case of rebates, this principle must also be applied, since their high amount, in certain cases, can substantially modify the company's results. Many of these can be invoiced by suppliers at the beginning of the year following the period to which the rebate corresponds. In this case, the company must apply the accrual principle and impute them to the year to which the rebate corresponds, making the corresponding accounting adjustment.