Which concept holds that a transaction is recorded at the time when it takes place and not when the settlement takes place?

3.4 Double Entry Book Keeping—ISC XI There are expenses which are not directly associated with the revenue (for example, salary paid to staff). These expenses are recognised as expense in the year they are incurred because the benefit of such expenses expires with the expiry of the accounting year.  Historical Concept. Under this concept, assets are recorded in the books of account at the price that is paid to acquire (purchase) the asset. It includes all expenses incurred to make it ready for use. For example, cost of machinery will include purchase price, freight cost, octroi, installation expenses of machinery, etc.  Accrual Concept. Under this concept, transactions are recorded at the time when they take place and not when the settlement of the transaction takes place. Assuming the liability or recognising the asset and payment made or received are separate from each other. Accrual Concept, along with Going Concern Concept and Consistency Concept, is a fundamental accounting concept. It is recognised to be the fundamental accounting concept by the Accounting Standard-1, Disclosure of Accounting Policies. Accrual Concept is presumed to have been followed. It means that while preparing the financial statements it is presumed to have been followed unless it is stated otherwise in the financial statements, i.e., the enterprise is not a going concern. If the enterprise is not a going concern, the financial statements will be prepared differently than the regular financial statements.  Dual Aspect Concept. According to this concept, every transaction has two aspects, a debit and credit aspect and the amounts under the two aspects are equal.  Materiality Concept. Under this concept, transactions are recorded in the books of account on the basis of materiality. An item is regarded as material if there is reason to believe that knowledge of it would influence the decision of an informed user.  Consistency Concept. Under this concept, accounting policies and practices once adopted and applied should be followed consistently year after year. However, it does not mean that accounting policies and practices once adopted and applied cannot be changed by the enterprise. Accounting policy may be changed under the following three situations: (i) If there is a change in law because of which accounting policy needs to be changed, or (ii) there is a change in the accounting standard, or (iii) the change will lead to better presentation and reporting. Consistency Concept along with Going Concern Concept and Accrual Concept is a fundamental accounting concept. It is recognised to be the fundamental accounting concept by the Accounting Standard-1, Disclosure of Accounting Policies.

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Definition: When transactions are recorded in the books of accounts as they occur even if the payment for that particular product or service has not been received or made, it is known as accrual based accounting. This method is more appropriate in assessing the health of the organisation in financial terms.

Description: To understand accrual accounting, let's first understand what we mean when we say the word 'accrual'. Accrual refers to an entry made in the books of accounts related to the recording of revenue or expense paid without any exchange of cash.

The use of accrual accounting is typically useful in businesses where there are a lot of credit transactions or the goods and services are sold on credit, which simply means that there was no exchange of cash. Let's understand Accrual accounting with the help of an example. Suppose you are a firm M/S ABC Pvt Ltd, and you are using accrual accounting to maintain your books of accounts. Here, any revenue or income which is generated by sales and expenses incurred are recorded as they occur. If you sell your goods or products on credit, the sale is recorded in the books based on the invoice generated. There is a possibility that you may not have received the payment by cash at that particular point in time. An expense is occurred or recorded when the raw material is ordered and not when the actual payment is made to the supplier by either cash or cheque. The only drawback of this type of accounting system is that you, as a firm, might end up paying tax on revenues even when you might have not received it (credit).

Under the accrual method of accounting expenses are balanced with revenues on the income statement. It helps give a better picture of the company's financial condition.