The accrual basis of accounting, as per IAS 1 (International Accounting Standard 1), refers to the method of accounting where transactions and other events are recognized when they occur (and not when cash or its equivalent is received or paid). These transactions and events are recorded in the accounting records and reported in the financial statements of the periods to which they relate. This method is fundamental to the preparation of financial statements under the International Financial Reporting Standards (IFRS).
IAS 1 outlines the accrual basis of accounting in the context of general-purpose financial statements, emphasizing that:
1. **Revenue and Expenses Recognition**: Revenue is recognized when it is earned, and expenses are recognized when they are incurred, regardless of when the cash transactions occur.
2. **Asset and Liability Recognition**: Assets are recognized when it is probable that future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. Liabilities are recognized when an outflow of resources embodying economic benefits is probable and the amount of the obligation can be measured reliably.
The accrual basis ensures that financial statements reflect all resources that have been received and consumed, as well as all obligations incurred during a period, thus providing a more accurate picture of an entity's financial position and performance.
In summary, IAS 1 requires the use of the accrual basis of accounting to ensure that financial statements are complete, reliable, and present a true and fair view of the entity’s financial performance and position.
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