There are four essential features of accrual basis of accounting:

(i)    Revenue is recognized as it is earned irrespective of whether cash is received or not.

(ii)    Expenses are matched against revenues earned in realization thereto e.g. raw materials consumed are matched against goods sold.

(iii)    Expenses which can be clearly identified with the accounting period are also treated as expenses for the period even though they may not be directly associated with the revenue of that period. Such costs are regarded as period costs and are expensed in the relevant period e.g. salary, rent etc.

(iv)    Expenses which are not charged to income are carried forward and are kept under continuous review. Any expense that appears to have lost e.g. deferred revenue expenditure. In conclusion, the distinguishing feature of accrual basis of accounting is that it brings into credit what is due, immediately it becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which is a legal liability and has been incurred before it is actually disbursed.

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