THE ACCURUAL BASIS OF ACCOUNTING

The accounting records when it is earned and expenses when the related goods or services are used is called the accrual basis of accounting.the purpose of accrual accounting is to measure the profitability of the economic activities conducted during the accounting period.The most important concept involved in accrual accounting is the matching principle.Revenue is offset with all the expenses incurred in generating that revenue providing a measure of the overall profitability of the economic activity.An alternative to the accrual basis is something called cash basis accounting the cash basis accounting revenue is recognized when cash is collected from the customer rather then  when the sells goods or renders services.  expense are recognized when payment is made when the related goods or services are used in business operations .The cash basis of accounting measure the amount of cash received and paid out during the period but it does not provide a good measure of profitability of activities under taken during the period.