Accrual System

The revenues are recognized only at the time of occurrence and expenses are recognized
only at the moment of incurring. Whether the cash is received or not out of the sales, that will be registered/counted astotal value of the sales. The next most important step is to record the transactions. For recording, the value of the transaction is inevitable, to record values, the classification of values must be
There are four different values in the business practices, among the four, which one
should be followed or recorded in the system of accounting?
Original Value: It is the value of the asset only at the moment of purchase or acquisition
Book Value: It is the value of the asset maintained in the books of the account. The book
value of the asset could be computed as follows
Book Value = Gross(Original) value of the asset - Accumulated depreciation
Realizable Value: Value at which the assets are realized
Present Value: Market value of the asset
Classifying: It is one of the important processes of the accounting in which grouping of
transactions are carried out on the basis of certain segments or divisions. It can be
described as a method of Rational segregation of the transactions. The segregation
generally into two categories viz cash and non-cash transactions.
The preparation of the ledger A/cs and Subsidiary books are prepared on the basis of
rational segregation of accounting transactions. For example the preparation of cash
book is involved in the unification of cash transactions.
Summarizing: The ledger books are appropriately balanced and listed one after another.
The list of the name of the various ledger book A/cs and their accounting balances is
known as Trial Balance. The trial balance is summary of all unadjusted name of the
accounts and their balances.
Preparation: After preparing, the summary of various unadjusted A/cs are required to
adjust to the tune of adjustment entries which were not taken into consideration at the
time of preparing the trial balance. Immediately after the incorporation of adjustments,
the final statement is readily available for interpretations.
Purposes of preparing financial statements:
l Financial accounting provides necessary information for decisions to be taken initially
and it facilitates the enterprise to pave way for the implementation of actions
l It exhibits the financial track path and the position of the organization
l Being business in the dynamic environment, it is required to face the ever changing
environment. In order to meet the needs of the ever changing environment, the
policies are to be formulated for the smooth conduct of the business
l It equips the management to discharge the obligations at every moment
l Obligations to customers, investors, employees, to renovate/restructure and so on.

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