An accountant of a firm,maintaining his books under accrual basis,does not want to account salaries amounting to Rs20000 for the month of March 2016,on the grounds,that it was not paid.The firm closes its books on 31st March every year.Is the accountant correct in doing so?



Dear Student,

According to the matching principle, a company should use the accrual basis of accounting and hence, the expenses should be recorded in the period in which they have been incurred and not in the period in which they have been paid.
Hence, the accountant is wrong in his approach, as the salaries for employees should be recorded in the books in the period in which the employees have worked, even if they have not been paid.

Regards

 

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