B) 2. Accrual System or Mercantile System of Book-Keeping:
Accrual System of book-keeping recognises the fact that, if the transaction has accrued (i.e., taken place), it's legal consequence cannot be avoided (i.e., the amount of that transaction has to be received or paid), and so, it should be brought into account in the year in which it has occurred in order to present a meaningful picture of the profit or loss and the financial position of the business. That means, the accrual System or Mercantile System of book-keeping is system of book-keeping under which entries for the recording of transactions of a business are made the moment the amounts of those transactions become due for receipt or payment. Of course, entries are also made later when cash is actually received or paid for those transactions.
This system of book-keeping is called the accrual system, as the transactions are recorded in the books of accounts the moment they have accrued (i.e., arisen), whether they are received or paid in cash or not. It is also known as the mercantile system, as it is followed by most of the mercantile or business houses.
Under the accrual system of book-keeping, incomes are recorded and credited to the year to which they relate (i.e., the year in which they are earned), whether they have been actually received in cash in that year or not, and expenses are recorded and debited to the year to which they relate (i.e., the year in which they are incurred), whether they have been actually paid in cash in that year or not. That means, under the accrual system, the profit or loss for a year is ascertained by considering all the items of revenues or incomes relating to that year, whether they are actually received in cash in that year or not, and all the items of expenses relating to that year, whether they are actually paid in cash in that year or not.
The accrual system of book-keeping is followed by most of the industrial and commercial undertakings.
Accrual System of book-keeping recognises the fact that, if the transaction has accrued (i.e., taken place), it's legal consequence cannot be avoided (i.e., the amount of that transaction has to be received or paid), and so, it should be brought into account in the year in which it has occurred in order to present a meaningful picture of the profit or loss and the financial position of the business. That means, the accrual System or Mercantile System of book-keeping is system of book-keeping under which entries for the recording of transactions of a business are made the moment the amounts of those transactions become due for receipt or payment. Of course, entries are also made later when cash is actually received or paid for those transactions.
This system of book-keeping is called the accrual system, as the transactions are recorded in the books of accounts the moment they have accrued (i.e., arisen), whether they are received or paid in cash or not. It is also known as the mercantile system, as it is followed by most of the mercantile or business houses.
Under the accrual system of book-keeping, incomes are recorded and credited to the year to which they relate (i.e., the year in which they are earned), whether they have been actually received in cash in that year or not, and expenses are recorded and debited to the year to which they relate (i.e., the year in which they are incurred), whether they have been actually paid in cash in that year or not. That means, under the accrual system, the profit or loss for a year is ascertained by considering all the items of revenues or incomes relating to that year, whether they are actually received in cash in that year or not, and all the items of expenses relating to that year, whether they are actually paid in cash in that year or not.
The accrual system of book-keeping is followed by most of the industrial and commercial undertakings.
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