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Accrual accounting is commonly used by most businesses to record all revenue earned

(received or owing) relevant to an accounting period, and all expenses incurred (paid or
owing) relevant to that periods revenue. Similarly, Robert records income when the
sale occurs, and records expenses when he receives goods or services. Robert does
not have to wait until he sees the money, or until he actually pays money out of his
checking account to record the transaction. Therefore, the income statement and
balance sheet records Creative Activities Pty Ltds assets, liabilities and expenses
arising from transactions and other events being recognised when the effects occur.
The challenge for Robert is to find all expenses belonging to a period and accrue
them recognise them as expenses before paying for them. Hence, dates and timing
in accrual accounting is vital.

With revenue and expenses being very closely matched, accrual accounting is based
on the matching principle indicating expenses must be matched (subtract) with
revenue. By matching revenues with expenses, Robert has a better idea of the
business net profits for each period. Therefore, accrual accounting has the benefit for
Robert to plan his business expansion ahead. It gives a true picture of the business
financial situation as income is recorded when it is truly earned and expenses are
recorded when they are incurred.

Reference List

Atrill, P., Harvey, D., Jenner M. and E. Mclaney. 2009, Accounting: An Introduction, 4th
Ed, Pearson Education Australia, Frenchs Forest.

Marley, S. and Pedersen, J. 2009, Accounting for business an introduction, 2nd Ed,
Pearson Education Australia, Frenchs Forest.

Needles, B.E., Powers, M. and Crosson, S.V. 2008, Principles of Accounting, 10th Ed,
Cengage Learning, Boston.

Porter, G.A. and Norton, C.L. 2010, Financial Accounting: The Impact on Decision
Makers, 6th Ed, South-Western Cengage Learning, Mason.

Peri H. and Pakroo, J.D. 2000, The Small Business Start-Up Kit: A Step-by-Step Legal
Guide, 5th Ed, Nolo, Berkeley.

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