Institute of Chartered Accountants of India

Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about its future direction of the company’s stock price. One of the most important resources of reliable and audited financial data is the annual report, which contains the firm’s financial statements. The financial statements are used by investors, market analysts, and creditors to evaluate a company’s financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows. Financial statements are records of the financial activities and position of a business. One of the fundamental accounting assumption for preparing and presenting the financial statement is ‘Accrual’. This led to the importance of Accrual basis of accounting.

Research Committee felt the need for revising ‘Guidance Note on Accrual basis of Accounting’ which was issued in the year 1988. The revised guidance note highlights the need for accrual basis of accounting, provides guidance in respect of transition from cash basis to accrual basis of accounting, further states the benefits associated with accrual system of accounting. The revised guidance note covers definition of accrual, accrual basis of accounting, difference between accrual basis of accounting with cash basis of accounting, need for the accrual principle, application of accrual basis of accounting with respect to assets, liabilities with some examples, income and expenses, transition from cash to accrual accounting along with appendix.

Download Guidance Note on Accrual Basis of Accounting

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February 2021