The accounting accrual It is a basic postulate established in the NIF A-1, which indicates that the effects of transactions and other events that economically affect an entity should be recognized at the time they occur, regardless of the date on which the cash is collected or paid.
This principle ensures that financial information accurately reflects the entity's financial position and performance, recognizing revenues, costs, expenses, assets, and liabilities when they are generated, not when money is received or paid.
Key concept
Accrual accounting involves:
- Recognize economic effects when they occur.
- Include both transactions with third parties and other internal or external events that affect the financial situation.
- Record assets, liabilities, income, costs, and expenses when the conditions for their recognition are met, even if payment or collection occurs later.
Types of events that are recorded by accrual
According to NIF, the economic effects may arise from:
- Internal transformations: Changes in resources or obligations within the company.
- Example: conversion of raw materials into finished products.
- Internal events: Processes that do not involve third parties.
- Example: depreciation, amortization, impairment of assets.
- External events: Events beyond the entity's control.
- Example: inflation, exchange rate fluctuations, natural disasters, political changes.
Practical examples with accounting entries
1. Credit sale
A company sells merchandise for $50,000 plus VAT of 16%, with payment within 30 days.
Entry at the time of sale (accrual):
Cargo Clients 58,000
Sales Subscription 50,000
VAT credit transferred 8,000
Although the customer will pay within 30 days, revenue is recognized when control of the merchandise is transferred.
2. Purchase of raw materials on credit
The company purchases raw materials for $20,000 plus VAT, payable within 15 days.
Seat at time of purchase:
Inventory Charge 20,000
VAT creditable charge 3,200
Suppliers Subscription 23,200
The expense or cost is recognized when the merchandise is received, not when it is paid.
3. Depreciation of equipment
Equipment with a value of $120,000 and a useful life of 5 years is depreciated on a straight-line basis.
Monthly entry:
Charge Depreciation Expense 2,000
Credit Accumulated Depreciation 2,000
There is no cash flow here, but there is an economic effect that reduces the asset's book value and affects the result.
4. Exchange rate loss
A customer owes USD 10,000; the exchange rate when the sale was recorded was USD 18.50, and at the end of the month it rose to USD 19.00.
Exchange rate difference entry:
Position Clients 5,000
Exchange profit credit 5,000
The exchange gain is recognized for the increase in the value in pesos of the account receivable.
5. Record of interest payable
A bank loan generates monthly interest of $8,000, to be paid at the end of the quarter.
Monthly entry:
Interest expense charge 8,000
Interest payable 8,000
The expense is recognized when it accrues, even if payment is made later.
Importance of accounting accruals
- It reflects the economic reality of the company.
- Facilitates comparison between periods.
- Complies with NIF and international standards.
- It allows decisions to be made based on complete and timely information.
Conclusion
The accounting accrual Ensures that financial statements reflect transactions and events as they truly affect the company, not just when cash comes in or goes out. This approach is essential for quality accounting and compliance with current regulations.
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